Because a contract is a legally binding document, the terms and provisions in the agreement will be the first place that a court will look to determine your legal rights and obligations. Covering all potential scenarios and ensuring that your rights and interests are protected in the written agreement, therefore, is hugely important.
Planning for all possible circumstances takes creativity, but also lots of legal experience. For business owners, especially small business owners and franchisees who do not have in-house legal counsel they can rely on, this can be a monumental task.
Every contract is different. Additionally, similar contracts in different circumstances should be handled differently, as the business owner's risks and concerns will not be the same.
However, in contracts for goods or services, there are some contractual provisions that are common but often overlooked by non-lawyers.
A merger clause, sometimes referred to as an integration clause, is a contract provision that states that the written contract is the complete and the final agreement between the parties. Agreements that have a merger clause are confined to the “four corners of the page” – if a term or condition is not in the written contract, then it is not a part of the agreement.
Merger clauses are important because they wipe away all of the proposals and rejected ideas that may have come up during the contract's negotiation process, in favor of the final document. They prevent one party from claiming that there was an additional agreement that was finalized but did not make it into the contract. If there is no merger clause, combatting this claim can be difficult and can require close readings of every piece of correspondence that led up to the signed contract – a time consuming and expensive endeavor that could lead to litigation.
A severability agreement protects the viability of the rest of the contract, should one part be deemed invalid or unenforceable in court.
For example, imagine a grocery store owner contracts with a vendor for a steady supply of eggs. In the contract, the store owner includes an aggressive non-compete agreement that says the vendor cannot sell eggs to any other store in the country. A vendor dispute arises when the owner tries enforcing that non-compete agreement, the issue goes to court, and the court invalidates the non-compete agreement.
What happens to the rest of the contract?
If there is a severability agreement in the contract, then the non-compete provision gets struck but the rest of the deal still stands. If there is no severability agreement, the entire contract is at risk of being thrown out.
One of the chief goals of creating an effective contract is to keep the parties out of court by making their rights and responsibilities so clear that there is no ambiguity that could become a full-blown dispute.
Including an arbitration agreement in the contract is a common fallback option for when a dispute arises, anyway.
A valid arbitration agreement steers the dispute away from the courtroom and into arbitration, first. A good arbitration provision also controls who does the arbitrating, as well as where it is to take place. Both of these factors can further protect a business owner's interests.
Forum Selection Provisions
A forum selection provision provides a similar service in a contract: Should the contract lead to a lawsuit, a valid forum selection provision will control where the lawsuit has to be filed.
This is especially important for small business owners who only operate a business in one region, as well as for businesses that are contracting with international vendors or clients. If you run a business in Massachusetts and are buying an expensive machine from a company in Ireland, you probably do not want to have to go to Ireland to take a dispute to court.
Choice of Law Clauses
While forum selection provisions stipulate where a lawsuit can be filed, a choice of law clause dictates which state's law will be applied to a legal dispute.
Each state has its own contract law. While they are generally very similar, the details can be different enough that one state's law will produce a better outcome than another state's.
While there are some limitations to the power of a choice of law provision, they can still be a useful tool to protect a business owner's interests.
Provisions Dealing With Attorneys' Fees and Court Costs
Contracts can also include a provision that says who will pay whose attorneys' fees and court costs.
Provisions like these can deter litigation and even the breach of the contract by giving each party a legal right to recover the attorneys' fees and the court costs that they have paid to enforce the terms of the agreement.
A damage limitation provision explicitly sets out which legal damages can be pursued in litigation stemming from the contract, and which cannot.
With one of these provisions in a contract, a business owner can prevent the other party to the contract from claiming that an alleged breach of contract was the cause of all sorts of reputational damage, or that the breach was the indirect cause of thousands of dollars in business losses.
Business and Contract Litigation Lawyers at the Katz Law Group Serve Massachusetts
These are just some of the most common contract provisions that business owners should consider including in a written agreement for buying or selling products or services. While employment contracts may include some of these provisions, the risks that arise from a much more intimate employment relationship will bring different concerns that require a different approach.
The business and contract litigation lawyers at the Katz Law Group strive to legally represent business owners throughout Massachusetts, including in Worcester, Marlborough, and Framingham. Contact them online or call their law office at (508) 480-8202.