Business Contracts: Understanding the Ties That Bind

By Allan C. Galis, published on October 19, 2011, in Business in Savannah.

In all industries, from hospitality and manufacturing to exports and retail, contracts define the terms of agreements and, if clearly drafted, minimize potential future disputes.

A contract is typically a written or oral agreement in which the important terms are sufficiently definite to be legally binding and enforceable in a court of law. An effective contract requires a written agreement which includes an unambiguous offer (which should specify terms, conditions, and deadlines) and a valid acceptance, the manner of which may be determined by the terms of the agreement itself or by the conduct or course of dealing of the parties. Performance terms, conditions, and deadlines can be negotiated by either party before final acceptance.

Although the specifics will vary depending upon the nature of the contract, here are some general tips to help maximize the effectiveness of any contract and reduce the chance of litigation involving a contract dispute:

Put contracts in writing. An agreement without a written contract can still be enforceable; however, the terms, specifications and understandings of oral agreements are subject to the recollections of the parties. This creates misunderstandings and litigation over what the agreement was. A written agreement clarifies the rights and obligations of the parties.

Read the contract carefully before signing. Review all contracts completely, and read the fine print so the terms of the agreement are clearly understood. In the event of a dispute, if the issues in question are addressed in a signed, written agreement, a party’s argument that he did not read or understand the contract will likely fail.

Ensure compliance with federal, state and local laws. Local, state, and federal regulations may be relevant to a particular contract depending on the context. Consult an attorney to ensure that the contract is in compliance with ever-changing regulations. Statutes, regulations, and case law that apply to your agreement must be considered to make sure a contract fully complies with the law.

Plan for the worst-case scenario. Always try to predict the worst possible outcome so you will be prepared in the event of a breach. Taking the time to consider the consequences of a breach at the time of drafting may minimize time and money later in the event of a dispute. Such considerations may include whether certain breaches may be cured, the amount of damages, and whether a dispute will be settled through arbitration, mediation, or litigation. The contract should be clear on contingencies for various scenarios and spell out timelines in unambiguous language.

Be specific. Too often, business owners make the mistake of drafting a contract that is short, basic, and general. Details matter. Loose language can lead to litigation because vague or general terms are open to multiple interpretations.

Remember that different areas of the law will require different contracts. There is no one-size-fits-all contract for every situation or for every state. Make sure you know which problems and issues are most common in your area of business and plan for those problems and issues. An attorney who specializes in your area of business can point out these problem areas and help you plan for them.

Keep statutes of limitations in mind. A statute of limitations sets the maximum time after an event that legal proceedings based on that event may be initiated. Georgia has certain statutes of limitation in place that typically limit contract actions between four and six years from the time the cause of action arises. Pay attention to these statutes, as they limit the time a company has to file a lawsuit on a particular contract. By contract, the parties may agree to change the time period to file a claim.

In summary, the contract should reflect the business deal agreed upon, anticipating success, but also planning for problems. Investing the time and money to prepare a good contract can prevent more expensive and time-consuming problems later.
____________________
Allan C. Galis is an associate with HunterMaclean’s Specialty Litigation Group. His practice focuses upon contract matters, commercial disputes and products liability. He can be reached at 912-236-0261 or agalis@huntermaclean.com.