Many businessmen and businesswomen are very comfortable entering into contractual relationships – so much so that often they will sign contracts or even draft contracts themselves (or use a form contract found online) without consulting an attorney.  This can be problematic for a variety of reasons

The exact language in a contract matters.  Furthermore, even if you believe the language in your contract is cut and dry, it may not be, and the last thing you want is your business to be bound by a contract that is unfavorable and holds your business liable.   It is far less expensive and takes much less time to have an attorney help you with your business deals before and during the time of the transaction, as opposed to cleaning things up after when they don’t go according to plan – no matter how attractive the deal is and how quickly the other party wants to close the transaction

Below are some common contract clauses, their impact, and what you need to know about them.

Attorney’s Fees.  One of the most common questions we get is about attorney’s fees.  Many clients presume that if they pursue someone for breaching a contract the client will be able to recover their attorney’s fees.  As a general rule, attorney’s fees are not recoverable in most actions.  When it comes to a contract dispute, there must be a clause in the contract that specifies attorney’s fees will be awarded in the event of a breach. 

Liquidated Damages.  Attorney’s fees are part of a larger group of damages called liquidated damages.  Some contracts have clauses that specifically set forth what the damages will be if one of the parties breaches the agreement.  The inclusion of a liquidated damages clause makes it easier to win a breach of contract claim.

Venue / Choice of Law.  Venue and Choice of Law clauses are often a part of boilerplate contract language.  A venue clause states where a lawsuit may be brought.  Venue clauses are almost always enforced.  Tied to venue clauses are Choice of Law clauses, which state what laws will be used to govern the contract.  If these clauses state something other than Minnesota, you may find your expenses dramatically increase should you be involved in a contract dispute.

Arbitration.  Arbitration clauses are often included in contracts.  Arbitration is supposed to be a cheaper and faster alternative to court litigation, but the expenses can be more than litigation and you have fewer rights in arbitration.

No Waiver.  No waiver clauses come in different sizes and shapes, but generally they state that if a party does not enforce its rights under a contract, it does not waive its right to do so in the future.  Therefore, if a contract has a no waiver clause, a party who has never enforced a particular provision can still sue the other party at a later date.

There are many more clauses that are routinely part of most contracts.  Before signing any agreement you need to know what those clauses mean and how they can affect your business.  We strongly encourage you to use legal counsel for all of your contracts, so that you don’t end up with a contract that adversely impairs your business. We would be happy to sit down with you and discuss these issues and any others that affect your business.