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DRAFTING CONTRACTS TO AVOID DISPUTES

Contract law lies at the heart of American society and is the framework from which individuals and businesses enter into agreements every day. From ordering a meal at the local diner, which creates a contract implied by law, to oral and written contracts, every transaction is governed by the principles set out by the state legislature and courts which interpret those statutes. For small businesses, their very viability ultimately relies heavily on the language of the contracts they have entered into with third parties.

Fortunately, many transactions do not give rise to a dispute. Otherwise, our courts would be clogged far beyond capacity and it would likely take decades to resolve disputes through the legal process. However, ask any small business owner or former owner who has been involved with the legal process what they would have done differently and the answer is likely to include, “I should have had an attorney draft my contract.”

This may sound self-serving coming from a law firm. In reality though, it is the parties to the contract who usually lose out when litigation becomes necessary. Attorneys often are rewarded in the form of elevated attorney’s fees. To avoid these fees and costs, not to mention the emotional toll a lawsuit can take on an owner, it is wise to hire a professional to draft legal documents at the outset of the relationship. A skilled attorney will know what questions to ask and language to include to address any given situation, so the majority of disputes can be avoided.

While oral contracts are enforceable, what often gives rise to disputes with these types of contracts is the inability to prove the terms agreed to by the parties. Judges cannot read minds of course, so they rely on evidence offered by the parties to support their opposing positions during litigation. Without a written contract in place governing the parties’ relationship, the aggrieved party bringing the suit is often unable to carry their burden of proof.

In order to prove that the opposing party (the defendant) breached a contract, a plaintiff business owner must show by a preponderance of the evidence that:

  1. The parties entered into a contract. This element requires that the plaintiff produce evidence that there was an offer, an acceptance of that offer, and consideration given by both parties. Consideration requires that each party must have given up something of value;
  2. The plaintiff performed their obligations set out in the contract or was excused from performing their obligations by the defendant’s malfeasance;
  3. The defendant refused or failed to perform at least one material term of the contract;
  4. The defendant’s failure to perform was the proximate and actual cause of the injury to the plaintiff.

With an oral agreement, an aggrieved small business owner is often unable to prove the first element—that the parties entered into a contract (or the terms of that contract), which usually means their entire claim is dismissed and they recover nothing due to the alleged breach, after incurring the costs to pursue litigation. This result is unacceptable to a small business owner in most instances, since they can ill afford giving away their services for free or incurring unnecessary legal costs.

Even with many written contracts, if the parties have not considered what circumstances may develop which could potentially give rise to a dispute, as attorneys are trained to do, they are often left with a situation in which the parties are deadlocked in a dispute and require legal counsel to aid them in resolving the dispute, either through demand letters, mediation, arbitration or ultimately a lawsuit. Most small business attorneys have seen this scenario repeat itself again and again, whereby the small business owner ultimately pays many times more in fees, costs, lost time and profits to resolve a dispute than it would have cost to prevent it by retaining an attorney in the first place. It is truly a situation where the old adage “an ounce of prevention is worth a pound of cure” applies.

Let our experienced San Diego Business lawyers help your small business remain viable for the long haul. Our attorneys have the expertise to help your company steer clear of common pitfalls by drafting contracts aligned with your specific needs. If you do find yourself in a contractual dispute, we can assist in resolving it in the most cost-effective manner possible through our mediation services, drafting demand letters, or engaging in communications with the opposing parties as appropriate. We offer flat fee payment options for many of the legal services we provide, so there are no surprises. As small business owners, we are passionate about helping you keep your legal costs affordable, so your small business can thrive.

See our Small Business Packages or Contact us anytime for a free evaluation.

By | 2017-09-11T01:52:57+00:00 July 8th, 2014|Business Contracts|Comments Off on DRAFTING CONTRACTS TO AVOID DISPUTES