From having litigated many, many contract cases, and having put together numerous contracts for various clients over the years, it is important to strongly emphasize just how important it is that your company contract be as comprehensive as follows in order to reduce future risks and lawsuits. In so many cases, I have found that if only the party creating the contract had given more consideration to the precise wording is used in a contract it would have saved that company both litigation and legal expenses down the road. The point of this article is to get you to start thinking about some of these standard provisions and how they might be important to the way you do business in the future. Having said this, I will concentrate on discussing the areas of attorney's fees, assignments, conflicts, and compliance with the law.
1. Attorney's Fees. You must have an attorney's fees provision in your contract. No exceptions to the rule. Quite often, clients will ask me if they can recover counsel fees against an opposing party. My answer is that in Massachusetts attorney's fees are a creature of either a statute or a contract. To that end, many contracts contain language that allows the non-prevailing party in any dispute to pay all costs and expenses, including expert witness and reasonable attorney's fees, incurred by the prevailing party in resolving such disputes. At present, Massachusetts law does not allow a prevailing party to seek fees from the losing party but two parties can agree in a contract to such an arrangement if all of the necessary terms are included in that arrangement. At all times, the term "reasonable attorney's fees" must be used.
2. Assignment Provision. What you never want is to allow the party you have contracted with to then go and give the contract to a third party without your permission. If you don't have this clause in your contract you could be opening the door to just such a possibility. An assignment or anti-assignment provision prevents both your company and the company that you are contracting with from transferring the agreement to another person or business. For example, an assignment may occur if either your company or the company you contracted with is sold. Under Massachusetts law, a contract is presumed assignable unless there is specific language in the contract prohibiting such conduct.
In some cases, the parties will provide themselves with the flexibility of assigning their rights under the contract but that any such assignment is done after full disclosure and consent by the other party to any such assignment. In certain cases, an assignment will benefit the parties in completing the intended underlying transaction. To ensure you maintain your flexibility to either deny an assignment or consent to the one you need to have the magic language appear in your company's contract.
3. Conflicts. Your contract is the final written product that has followed earlier memos, emails, and perhaps letters of intent between the parties. What a conflict provision does is to ensure that the final written agreement controls over any earlier or contemporaneously referenced term, document, or communication. Additionally, any time a contract is created that incorporates or refers to another document, there remains the distinct possibility that the various terms used in the various documents may collide and create confusion. In order to eliminate this confusion, a conflict provision is necessary in order to clarify that the provisions in the written final agreement are the ones that control in the event of any conflict. Furthermore, it is best to have an additional clause that the contract language and all of its provisions, including any addendum, take precedence over all other writings and or agreements executed either previously or contemporaneously with the final written agreement.
4. Compliance with Laws. There must be a clause in the contract that each party complies in all respects with all legal requirements, obligations, duties and shall obtain all necessary permits, licenses, or other certificates necessary for full compliance with the contract. What this kind of clause does is not only to ensure that the parties have done everything legally to carry out the specific terms of the contract but to make a failure to comply with meeting the requirements of this particular section of the contract a separate breach of the contract itself. For example, should the other contracting party undertake some legal action that is not in compliance with the legal requirements of what they were supposed to do under the terms of the agreement then it allows the other party to terminate the contract and receive damages for any resulting economic harm?
It takes a lot of proactive thinking and hard work to make your contract as bulletproof and as comprehensive as possible. Our goal at the Katz Law Group is to mitigate as much as possible those problem areas that could give rise to increased risk or litigation later on in the contractual relationship. In my next blog, I will focus on the areas of choice of law, choice of venue, indemnification, and limits of liability. Please feel free to call us at 508-864-7672 for further information on how you can better protect your company's contract rights and interests.