Too often, a client first meets with an attorney after a contractual relationship is already damaged beyond repair. A misunderstanding among parties regarding their respective rights and obligations under a contract is often the cause of the problem. Entrepreneurs tend to think that everything will go smoothly in their business relationships. This optimism can help propel them to business success by allowing for greater risk tolerance. However, a contracting party should understand all provisions of a contemplated contract because if something goes wrong, courts will assume that both parties understood the contract. By working with an attorney familiar with contracts, that attorney may be able to help resolve misunderstandings in contracts before a dispute arises.
Resolve Misunderstandings Early
The best time to consult with a lawyer is before, not after, you are in legal trouble. Maintaining a relationship with a trusted attorney ensures that the terms of a contract reflects the intent of the people or businesses entering into them. Unfortunately, once a contract is in litigation, those parties may find that the legal effect of a provision does not reflect their intent. Once the damage has been done– whether it is in terms of cash, time, and relationships– litigation can be expensive.
When contractual provisions are litigated, business relationships are often further strained by cost shifting clauses in the contract that may prove pivotal. Yet indemnity provisions, which serves these cost shifting functions are among those rarely understood by contracting parties. Earlier this year, such realities inspired me to compile a partial list of things to keep in mind when negotiating and drafting such provisions entitled Considerations for Tailoring Indemnity Agreements, but in-depth considerations must be given to every contractual provision.
Like indemnity clauses, each contractual provision serves a purpose and confers rights and obligations upon the contracting parties. These rights and obligations affect the value of the bargain for each party in ways they may not have contemplated. In thinking about these issues I’m struck by the time, money and relationships that can be spared by resolving potential misunderstandings before pen is put to paper. Often, litigation and the resultant damage to valuable business relationships can be avoided through careful counseling during contract negotiations.