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Contracts 101

By September 15, 2014May 6th, 2021No Comments

One of the most expensive mistakes a client can make is drafting his or her own contract. The failure to receive professional advice can result in a hornet’s nest of problems not the least of which is the possibility of a lawsuit and the huge expense of litigation. Here are a few considerations and tips:

1. Do not pull a contract off the web and use it! The language used in a contract requires precision and professional advice. The improper use of a comma or an imprecise word can literally change your intended business result 180 degrees! Invariably, I am presented with clients who either drafted their own agreement improperly or (dare I say) – entered into an oral contract. Depending on the magnitude of the deal, skimping on professional advice can be devastating. It is not uncommon for litigation to exceed the amount of the contract itself.

2. He/She who drafts the contract – loses! Another problem with drafting your own contract is that the rules of construction will resolve any ambiguities in the agreement against the person who drafted it. The concept is that you don’t punish the person who relied on the language of someone else’s contract if the terms are unclear. Of course, there’s nothing wrong with using your own contract if you obtain proper legal advice. In that situation, there should be no ambiguities in the terms and you can benefit from the “homefield advantage”.

3. Include a Merger Clause! A merger clause is a fancy phrase for language which states that the terms in the written agreement trump any prior or contemporaneous communications between the parties about the deal. This is very important because without this clause, someone challenging the contract could pull out a prior email with different terms and argue that the written agreement was not complete.

4. Ask for Attorney’s Fees! If you have to go to court to enforce your agreement make sure your contract gives you the ability to recover the bucks paid to your attorney. Keep in mind that in Texas you have the right to recover attorney’s fees if you file for breach of contract, i.e., claim the other party violated the terms of the agreement. However, if you are sued by the other contracting party, you are not entitled to attorney’s fees under Texas law unless it is provided in the contract. This is a big issue which is easy to miss.

5. Ask for an injunction if you can. This is hard to put in a few words, but in some cases it is critical to get the breaching party to stop doing a bad act in violation of a contract. For example, let’s say an employee decides to steal a trade secret or compete against your business. The way to stop this is through a court injunction known as a TRO – temporary restraining order and permanent injunction. The best advice here is to get the other contracting party to waive its right to object to this remedy if you ask for it.

BOTTOM LINE: Drafting a contract requires the assistance of an experienced lawyer. Cutting corners can cost you big time!