As a Texas Contract and Business Attorney for many years, I typically meet with unhappy clients after the damage is done. Of course, I don’t expect potential clients to walk into my office with a big smile. You don’t pay a visit to a business and litigation attorney when things are going well.
That said, many of the problems encountered could easily have been avoided if our clients knew how to negotiate stronger contracts.
So how do you protect your contract rights? What contract strategies are suggested by an experienced contract and business attorney? Here are my recommendations:
1. Make sure all business terms are in the contract.
This may sound obvious, but it is the number one cause of problems encountered by clients. Almost all contracts have a “Merger Clause” which limits the contract terms to exactly what is stated in the “four corners of the agreement”. This legal phrase allows the other contracting party to get off the hook completely if a key term does not find itself within the listed terms of the contract. As an example, an email between the parties which sets forth a new term would not be admissible or accessible in the event a lawsuit resulted. The lawyer on the other side could easily keep it out if it does not appear within the “four corners of the agreement”. Bottom Line – make sure all terms of the agreement are clearly expressed in the document.
2. Watch out for Damage Limitation Clauses!
These are sneaky clauses which purport to limit the damages the other side pays even if he/she/it are responsible. That is hard to believe but it is the law in Texas. If you see any clause which limits warranties or claims you could assert for bad deeds including fraud – make sure they are stricken from the contract. Believe it or not, these damage limitations are enforceable under Texas law if they are in bold print and conspicuous.
3. Watch out for arbitration clauses.
These provisions take away your right to file a lawsuit in a public court if litigation ensues and they are entirely enforceable. Typically, these provisions name a specific “private judicial service” which is charged with hearing a dispute which arises under the agreement. As there is no way to challenge these provisions in court, I would recommend striking them before signing on the dotted line. If the other side objects to this, that is definitely a red light. I would stop and move on to a different opportunity.
4. Watch out for separate “Terms and Conditions”.
This is another sneaky attempt to impose new terms which may entirely change your understanding of the deal. Terms and conditions are separate contracts that are stapled to the back of a contract and denoted typically with an exhibit number or letter. The document looks innocuous and is usually in a small font. Beware as these terms are incorporated into (made part of) the main contract and entirely enforceable.
5. Watch out for events of default.
The are the terms which determine whether you are violating the contract and subject to legal action. An example would be the failure to make a payment on time. However, other events of default are more nebulous and can include almost anything including the inadvertent violation of an obscure provision of the contract. Make sure you understand each and every event of default and seek legal advice to be certain as to the legal import of contractual language.
6. Identify your Contract Strategy.
All contracts involve a discrete business transaction and have offensive and defensive contract strategies. If you are proposing the contract (offensive) – you want to include as many reasonable contract limitations as possible. See the above information and follow my recommendations in reverse! Keep in mind that an experienced Houston contract attorney will be able to advise on the reasonable terms to utilize in discrete contracts such as real estate purchases, services, employment, internet, etc. Every contract is different and tailored to the specific transaction.
Defensive strategies come into play when you are reviewing a contract proposed by the other party. Simply follow my recommendations above.
Negotiating strong business contracts must be your goal in pursuing any deal in Texas or anywhere else! You must be informed to protect your contract rights. Follow the contract strategies above to increase your likelihood of success.
Of course, it is always a good idea to seek professional and experienced legal advice before you sign any agreement.
At the Moster Law Firm we are here to help. Simply contact us below for a complimentary consultation and forward your contract for our prior review!