Take Special Care with These Five Contract Provisions to Avoid Litigation

Business contracts are an essential part of doing business in New Jersey. Contracts define the terms and conditions of an agreement and protect the parties. Business contracts can also reduce the risk of litigation if the contracts are drafted and executed correctly. However, some clauses in a contract can cause disputes and result in costly and time-consuming litigation if the parties are not careful when wording the clauses. Our New Jersey business litigation attorneys can help you ensure that the terms and conditions of your business contract are worded in a manner that helps you avoid litigation.

Clauses that Can Be Tricky When Drafting a Business Contract

Some of the following clauses are intended to avoid litigation or limit the scope of litigation. In either case, these clauses can result in additional issues for the parties, if the clauses are not handled with care.

  • Entire Agreement Clauses

Many contracts contain a clause that states the agreement between the parties is limited to the terms contained in the contract. In other words, the court should only look at the written agreement when settling a dispute between the parties. The clause is intended to prevent a court from looking at representations, statements, and negotiations that took place before the execution of the contract. Therefore, you need to ensure that the contract includes all provisions and details about representations and negotiations that could impact future issues and disputes.

  • Provisions for Frustration of Contracts

If one party fails to abide by the terms of the contract, the party is said to be in breach of the contract. The other party can sue the breaching party for damages. However, in some cases, one or both parties may be unable to carry out the terms of the contract because of a situation that is outside of the party’s control.  For instance, a key supplier for both parties files bankruptcy, and the parties cannot meet the deadlines in the contract because they need additional time to locate a new supplier. The contract should outline how instances of frustration will be handled to avoid litigation.

  • Termination Clauses

A contract should contain termination clauses that clearly define the circumstances under which each party may terminate the contract without financial or legal consequences. The contract should include details in the termination clause regarding notice, grounds, terms, and recourse. In addition, the contract should also include alternatives to termination if a dispute arises so that the parties can resolve the dispute without litigation.

 

  • Arbitration Clause

 

Arbitration clauses are designed to avoid litigation, in part because litigation is thought to be more expensive and more time-consuming than arbitration. However, an arbitration clause can actually cause more harm because you have no right to appeal. You may be limited to your choice of arbitrators if the contract specifies that the arbitration must be in accordance with the rules of and before an approved arbitrator with the American Arbitration Association. In some cases, an arbitrator can charge as much, if not more, than your attorney does for the arbitration. Therefore, you may want to consider mediation or non-binding arbitration clause.

 

  • Non-Compete Clauses

 

Non-compete clauses are often the source of litigation because the company inserting the non-compete clause attempts to restrict the employee from performing any work in any location for long periods. Non-compete clauses are legal; however, they must be clearly defined and cannot place an undue burden on the employee or harm the public interest. In addition, these clauses are not enforceable if they are overly broad regarding space, time, or scope.

Contact Our New Jersey Business Litigation Attorney for More Information

Negotiating and drafting a business contract can be a complex process. You want the contract to be specific enough to avoid litigation, but not so specific that the clauses within the contract give rise to disputes and litigation. Our New Jersey business litigation attorney can help you draft a business contract that meets your needs, protects your best interest, and decreases the risk of litigation. Contact our attorneys at Nagel Rice, LLP today for a consultation.

Posted in: Business Litigation