Living with Your Contract

Living with Your Contract

By DeAnn Flores Chase February 23, 2016    Category: Contracts    

This is the second of a three-part series discussing legal steps an entrepreneur, business owner or professional should take when starting and growing a business.

Living with your contract means knowing what your business contracts say, and conducting your business consistent with the terms of these agreements. Whether you are starting or growing a business, well-drafted written contracts are critical to your success. Too many business owners rely on “form” or “template” contracts obtained from the internet, an office supply store, or other businesses in their industry. However, when it comes to contracts—one size does not fit all.

Contract law is all about the intent of the parties. In the event of a dispute, it comes down to proving to an arbitrator, judge or jury what the parties intended and how the contract was to be performed. What many business owners do not realize is that, if they present a contract to someone that contains an ambiguity, (meaning that a reasonable person could read a particular provision more than one way), the least favorable interpretation will be used against the business owner as the drafting party.

Unfortunately, many people never read the contract until there is a dispute. At that point, people ask, “What does the contract say about that?” Critical contract provisions include the following:

  • Integration Clause. The “integration clause” of a contract states that the written document constitutes the “entire agreement of the parties.” All prior negotiations are deemed to be contained in the written document, such that, in the event of a dispute, an arbitrator, judge or jury is limited to the “four corners” of the contract to determine the intent of the parties. This clause presents a particular problem where someone promises to do something before the contract is signed, but that promise is not contained in the final agreement signed by the parties. Living with your contract means taking the time to be sure that everything that is promised is in the contract before you sign.
  • Amendment. As with any relationship, things change as you get to know one another. As circumstances change, so must your contract. Many template contracts provide that, once the contract is signed, it may not be modified or amended, except in a “writing signed by all parties.” This clause becomes a particular problem where business is conducted by telephone or e-mail. Living with your contract means taking the time to be sure everyone signs a written amendment before additional work is conducted.
  • Attorney’s Fees. If your agreement is not in writing, or your written agreement does not include an “attorney’s fees” provision, you may not be able to recover your cost of hiring an attorney to enforce the terms of your contract. In California, if you file a lawsuit and win, you are entitled to recover damages, as well as your litigation costs. You are not generally permitted to recover your attorney’s fees, unless you have a written contract that provides for the recovery of attorney’s fees. Living with your contract means ensuring that your contract provides that you will recover your attorney’s fees if you prevail in a lawsuit, or if you simply need to take action to collect.

Form or template contracts can be a good starting point when putting together business contracts. That being said, it is advisable to review your contracts with a business law attorney familiar with drafting contracts, and to customize contracts for your business that you can live with, before you give them to someone to sign.