Summer is over and it’s time to get back to work. For me, that means back to blogging and protecting my clients’ business interests. For you business owners, consider it a good time to review your business contracts. As a business litigator, I frequently see poorly drafted contracts that result in companies being dragged into court, or in a weakened position if they have to file suit. You may find free contract samples on the internet, and they may be worth every penny. Contracts need to be tailored to your industry, your state law, and to accomplish your particular goals.
While contractual language may seem routine and mundane and full of boilerplate, the language of contracts can make the difference between being sued and not sued, between losing a trial or prevailing on a summary judgment motion, and between paying triple damages or just single damages.
Here are a few of the more important provisions. I’ll add some more provisions in later segments. I know that the attention span for contractual clauses (at least for me) is not that long. No one actually needs these provisions …. until things fall apart and they need these provisions.
Choice of Forum Clause
Getting sued is never pleasant, but getting sued in a state other than your home state can be even worse. You’ll have to find an attorney in the other state to represent your company. You’ll have to travel to the other state for depositions and trials. You may be concerned that a judge or jury will view your out-of-state company less favorably than the local company.
This can be avoided with a very simple, commonly enforced clause. Better yet, you can reverse this by making your opponent come to Massachusetts to sue you. This creates a disincentive to sue you, and makes your opponent spend all the travel related expenses.
Whenever you have the bargaining power, and especially when you are contracting with an out-of-state company, insist on a choice of forum clause. You can also insist on what law applies, which doesn’t necessarily have to be Massachusetts.
Merger/Integration Clause Plus.
Many contracts have boilerplate merger and integration clauses which essentially state that the contract contains the entire agreement and that all prior negotiations are merged into the agreement. This gives you some protection from the other party claiming that there were different oral terms discussed. This is fine, as far as it goes.
But you can do better. The “plus” that I would include would be language that would protect you (to the extent possible) from claims of misrepresentation and fraudulent inducement. This is important, because your opponent will use these claims to get around the plain terms of the contract. Worse yet, your opponent will make a claim under Chapter 93A, which provides for potential double or triple damages, plus attorneys’ fees and litigation costs. This area of law is very tricky. There is a line of Massachusetts precedent that states that boilerplate language will not protect you against claims of fraud.
As a lawyer, it’s frustrating that the courts disregard tried and true contractual language by simply dismissing it as “boilerplate.” But we have to play the hand we are dealt. There is another line of cases that allow sophisticated business entities to set forth the entirety of the representations that they are relying upon. There is no one-size-fits-all provision that works here. You’ll need to spend a few dollars in legal fees to protect yourself from a potentially big judgment.
Limitation of Liability/Damages Clause
Parties can agree to a maximum limit of the amount and type of damages for which they will be liable. This is more important if you are the party who is more likely to be sued for consequential or punitive damages. For example, if you are providing services, you may want to have a provision that your liability is limited to the total amount that you are being paid. If you are providing goods, you may want to limit any remedy to replacing the goods.
You can have a provision that precludes punitive and exemplary damages, and provides that the parties will pay their own attorneys’ fees. There are dozens are variations, depending on your particular industry and your goals. Not every provision will be enforceable for every industry, which is why you should not just pluck some provisions from the internet and hope for the best.
If your business contracts need a tune up, give me a call at 617.338.7000.
Adam P. Whitney
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