Any business, whether it is just starting out, growing by leaps and bounds or well-established, should take the time to carefully consider and analyze the terms and provisions of contracts it intends to execute. Too often a situation that might have been quickly and easily resolved by simply referring to well-drafted contract language turns into costly and time-consuming litigation. More significantly, problems or questions concerning the contract that could have been avoided by a carefully crafted agreement diverts valuable time and resources from your company's business.
Whether the contract is simple or complex, one thing it should never be is overlooked. It may be that by merely adding or deleting a key phrase or provision to the contract you can minimize the possibility of future lawsuits involving the contract, as well as reduce the costs and expenses of litigation should a problem later develop. Remember, the ultimate goal is to make a short term investment of time to avoid longer term headaches and aggravation, including the cost of litigation.
Here are just a few examples to consider before signing that next contract.
Terms and Conditions. The contract's terms and conditions should be, to the extent possible, stated with specificity. While it may be stating the obvious, avoid ambiguity. Avoiding ambiguity serves two purposes. First, it leaves the parties with no doubts as to their respective obligations and, in that regard, minimizes later questions. Second, it eliminates the need for the court to later construe the agreement and supply contract terms which were left open. Also, keep in mind that in Ohio contract ambiguities will be construed against the party drafting the agreement.
Signature/Execution. Make sure that the contract is properly executed. It should be signed by individuals who have the authority to bind the company. Often times in the rush of the business world it will be assumed that the contract was properly executed only to learn that, when it became necessary to enforce the contract, it, in fact, had a blank signature block. Although the contract may still be enforceable based on course of dealing and the parties' performance of the unsigned contract, the better practice is to ensure proper execution. Again, this simple practice will eliminate the contract's validity being called into question at a later date.
Choice of Law. The parties may wish to choose which laws will govern their contract. For example, Ohio law may be favorable to your company in one contractual situation, but not in another. Knowing how a certain state's law will effect a given contract will help your company decide whether a choice of law clause should or should not become part of the final contract.
Arbitration. This alternative dispute resolution procedure is often cost-effective and will enable the parties to air their concerns more quickly as compared to traditional litigation. The parties can either agree to binding or non-binding arbitration of disputes. They can also provide for how the arbitration provision is to be triggered and where the arbitration will take place, under what rules it will be conducted, and, in some circumstances, who will serve as the arbitrator.
Forum Selection. Where are the parties to the agreement located? Your company may want to select where a suit will be heard. An Akron-based company may want to select the Summit County courts, whereas a Lorain-based company may want to select the Lorain County courts. If your company is dealing with an out-of-state business, you may want to negotiate that disputes be heard in Ohio as opposed to some distant forum. Recent Ohio law suggests, however, that such clauses need to be worded so that the parties not only submit to the jurisdiction of a particular forum, but also waive their right to have the dispute heard in a forum that would have had proper jurisdiction absent the forum selection clause. Selecting the forum in which a contract dispute is to be heard will keep it close to home and less costly. It is also an easy way to eliminate the need for challenges to jurisdiction in the event suit arises.
Entering any contract is an exercise that should be undertaken carefully and done so after consulting with counsel. Analyze the proposed contract's terms and provisions. Give them some thoughtful consideration. Ask how they will effect not only the contract itself, but your company and your business over the life of the contract. The up-front investment of a little extra time will pay dividends.
Reprinted with permission by SBN magazine