Important Contract Provisions Every Business Owner Should Watch For
A key component in the success of any business is the contractual relationship it maintains with customers, clients, vendors, suppliers, employees and independent contractors. From “handshake” agreements to carefully negotiated written contracts, these agreements establish the legal framework for the parties’ relationship. Typically, senior managers focus on the agreement’s “core” terms – price, quantity, quality, timing and payment. Because those terms are crucial they have been the subject of extensive negotiation, which precedes the drafting of the contract. It is the other seemingly innocuous provision, often referred to as “boilerplate,” that becomes the focal point when a relationship sours. Before executing a contract it is prudent to spend time analyzing how the contract will be unwound in the event of a dispute. Below, we address several critical, but often overlooked, contract terms.
Choice of Law/Venue:
A contract usually defines which state’s laws will be used to interpret the agreement and where (state, county and courthouse) any dispute must be resolved. Early in a business relationship, when all is hopeful, this provision seems unimportant, but when a dispute arises and you find yourself in a distant courtroom, applying unfavorable law, before a jury who views you not as a peer but rather as an outsider, the value of a fair location for dispute resolution becomes clear. Rather than brush over this provision, imagine the logistical challenges of litigating in that location, inquire as to the implication of state’s laws chosen, and advocate for a location that is preferable or at least equally inconvenient.
A merger or integration clause states that the written contract represents the full and final agreement of the parties, and also provides that any previously executed written or oral agreements on the same subject matter are superseded. The purpose of this clause is to prevent one party from arguing that the parties’ actual agreement differed from the written language in the contract.
This term generally provides that the conditions of parties’ contract may only be modified in a written agreement signed by both parties and that an alleged oral modification will be unenforceable. For any number of reasons, parties often need to amend or modify the terms of their contractual agreement. The failure to require that modifications be in writing and signed by both parties opens the door for one party to argue that the contract had been modified orally. This can lead to disputes about the actual terms of the contract.
Contracts often require one party to notify the other of important matters relating to the agreement itself. For example, contracts with no end date and/or with automatic renewal provisions often require that notice of termination be provided by a certain date. A well-drafted notice provision should set forth when and how notice must be made (e.g. via certified mail, via email). Without appropriate notice language, one party may dispute whether notice was or was not given in timely fashion.
Similar to above, every contract should clearly identify when, how and under what circumstances it may be terminated before each party’s obligations have been completed (e.g. for cause, with 30 days’ written notice, with six months’ written notice). The failure to include appropriate termination language can result in an agreement being terminated without notice, or an agreement remaining in force even when one party is arguably no longer performing.
Susan Tegt represents and counsels clients in a wide variety of commercial, contractual, franchise and distribution disputes. She is also a seasoned trial attorney with comprehensive experience in arbitration and litigation in the state and federal district and appellate courts. With Susan’s range of experience, her clients trust her as both a zealous advocate and someone who will find practical and clear solutions to challenging problems.
Andrew Moran represents and advises businesses in commercial litigation and employment law matters. He focuses on the defense of employment-related disputes, and counsels businesses and individuals on disputes over non-competition and non-solicitation agreements, confidential information, trade secrets, and a variety of contract and tort-related matters.
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