As a business owner, it’s not enough to just have a contract, but truly “living” with your contract is the key to your best business protection. Living with your contract means knowing what your contract says, knowing what your contract means, and knowing how to enforce it when the time comes. 

Here at Chase Law Group, we work with business owners on a daily basis and we find that oftentimes new clients come to us using a contract that they may have downloaded from the internet or they’ve borrowed it from someone else in their industry. Now they’re using that contract in their own business, giving it to their clients and customers to sign. Unfortunately, we’ve seen business owners get into trouble when they don’t fully realize what their own contract says, especially when it comes to resolving disputes. 

How are you required to give notice of contract termination? 

Conflicts do arise in business and if a business decides that they want to terminate their contract with their client, they need to know how to give notice and what the dispute resolution provisions in their contract mean. Here’s why…

In one particular situation, a business owner had clients who were difficult to get along with, were highly demanding, and always seemed to be looking for an opportunity to claim that the business had done something wrong, always trying to renegotiate the fees for services. When the business owner finally decided that they no longer wanted to work with their client, they sent an email to the client stating that they were terminating their contract. Despite this email, their client continued to make demands. 

After consulting with us, we took a look at the contract which noted that they could not terminate the contract unless they provided a written notice which stipulated that the business needed to send a written letter by first-class mail or by FedEx to the address listed in the contract itself. So the business owner’s attempt to terminate their own contract by sending an email did not result in an effective termination of their contract. This is a classic example of why you need to know what your own contract says in order to know how to enforce it. 

What should be in the “legalese” in case of a dispute?

Most contracts should have some provisions that address what happens in the event of a dispute. This could be an arbitration or mediation provision, or a clause that says what court the parties will go to if they have a dispute. 

The three primary methods of resolving a dispute typically included in a contract can be:

• Litigation – Simply just going to Court and getting attorneys involved to resolve the dispute resulting in a winning or losing party.
• Arbitration – A more informal setting and typically more streamlined process where the parties agree to take their dispute to a neutral third party (usually a retired judge or attorney experienced in handling arbitrations). The arbitrator has the authority to make a binding decision finding as to which party wins or loses.
• Mediation – The parties agree to take their dispute to a neutral third party, similar to arbitration, but the difference is that a mediation is a facilitated negotiation, where the mediator talks to both sides, usually separately, focusing on the strengths and weaknesses of each party’s case in an attempt to get each party to come together to some sort of compromise.

In an arbitration or a court process, a judge or a jury makes a final decision that is binding. While mediation is not binding and it does not determine who’s right or wrong, it can be very effective because the mediator can negotiate a binding settlement agreement where each party agrees to abide by the terms of the settlement which means that you end up with a binding resolution of your dispute through mediation.

How will attorneys’ fees be handled?

The attorneys’ fees provision in your contract is closely related to whether you’re going to litigate, arbitrate or mediate in the case of a dispute. This is a very important provision to include in your contract because in the event that the parties end up in court or arbitration, the winner gets their attorney’s fees in addition to any relief that is awarded by the judge, jury or arbitrator.

This can be very persuasive as it can serve as a deterrent to someone pursuing a frivolous case and may make them think twice about filing an action or claim under a contract if they know that if their claim has no merit and they lose, they will not only have to pay damages but also the other party’s attorney fees. 

Alternatively, an attorneys’ fees provision is also really important because you may have a dispute over a relatively small amount that may be more of a dispute in principle, where someone is acting in bad faith and you may just want to walk away. In the case where you may be pursuing a smaller amount, having an attorneys’ fees provision in your contract can be beneficial as it may incentivize an attorney to work with you and take your case knowing that their fees may be covered if you prevail.

Do you know what’s in your contract?

Knowing what your contract says and how you will enforce it is determined by how you will resolve disputes. It’s important that you not just use someone else’s language or contract template but to choose your dispute resolution process wisely. What makes sense for you and your business may be different from another. Think about whether you will allow the matter to go straight to court or if you’d prefer a more private or expedited process through arbitration. Maybe you try going to mediation first to reach a compromise and facilitate a settlement agreement. You can even further stipulate that if the party skips mediation and goes to arbitration or court then they may not get their attorneys’ fees even if otherwise entitled to them.

Let us help you live with your contract

There are many ways to enforce your contract so please contact us at Chase Law Group or give us a call at 310.545.7700 to schedule a consultation and review of your contracts.