Picture this: you finally secured the deal you’ve been working for. You came to a mutual understanding with the other party and documented the terms and conditions of your arrangement in writing. You executed the contract and are ready to move forward with the agreement as planned. To prevent potential unforeseen circumstances and disputes, you may want to take a step back and LOOK, CONSIDER AND PLAN.
In any contractual arrangement, whether it’s a customary Services Contract or a complex Purchase and Sale Agreement, it is crucial to understand all of the provisions of the contract. It’s important to fully appreciate your deal so that you can reap its full benefits. Some individuals may think “I’m friendly with the other side, so I’m sure there isn’t anything surprising in there” or “I was told it is ‘simple’ and ‘customary,’ so it’s fine.” They may believe that it is unnecessary to delve deep into the contract. However, many people find themselves in unfavorable legal situations because they didn’t take the time to fully read the contract to understand all of the obligations, procedures and limits it may impose upon them.
The terms of a contract dictate the relationship between the parties. If the contract rules are not followed, there can be harsh consequences for the party in breach. Therefore, it’s prudent to review the fine details and think before you act.
For example, many contracts, like Settlement Agreements and Employment Separations, contain confidentiality, or non-disclosure, language that prevents one party from divulging certain information related to the arrangement. That confidential information should be kept in confidence in accordance with the terms of the deal. Recently, Patrick Snay, the former head of a preparatory school in Florida lost an $80K+ settlement he received for an age discrimination claim against his previous employer. The Settlement Agreement provided that Snay would not disclose certain information to anyone except for his attorneys and other professional advisors. Unfortunately, he filled his daughter in on the deal and she posted the confidential information via Facebook. The court ruled that Snay was in breach of the agreement “by doing exactly what he had promised not to do.”
There could also be stipulations relating to “cure periods” where a party is prohibited from bringing a breach of contract claim against the other until the alleged breaching party has had a chance to remedy the default. Any amount of time to cure specified in the agreement should be respected. In January of 2014, DC Farms in Idaho filed a lawsuit against Conagra Foods, claiming breach of contract for the failure to comply with the seven day cure period provided in their contract. When DC Farms allegedly breached, Conagra did not allow a period to cure because, according to them, DC Farms would be unable to remedy the breach within that time frame. Still, the Washington Court of Appeals ruled that Conagra actually breached the contract by failing to give the time required, saying “a party who has bargained for a notice-and-cure provision to protect against forfeiture and litigation is entitled to have that bargained-for protection honored.”
Your contract may also dictate certain procedures for altering the nature or content of the agreement. For example, the agreement may order that “either party may terminate upon thirty days’ notice.” If the agreement proscribes that “notice” must be given in writing by regular mail to the parties’ home addresses, sending an email will likely not be acceptable and the termination could be invalidated.
Similarly, if modification of the agreement can only be effectuated by a writing signed by the parties, agreeing to change the terms in person with a handshake will probably not bring about an actual change.
You never know what may happen in the course of your business relationship. Ensuring that your contractual obligations are met, no matter how tedious or procedural, is a prudent way to protect yourself against disputes in the future.
Contributing Editor: Jessica Cox