Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Avoid suits later with good contracts now

- by Alan Duvall 

Published in Dayton Daily News May 7, 2006 

Judicial dockets are gorged passed capacity with lawsuits which could have been avoided had negotiating participants adequately paid attention to details.  A humble sampling of legal-lite tips may help alleviate future law-induced headaches. 

A contract does not have to be in writing to be binding.  However, a plaintiff basing a claim upon an oral contract obviously has a difficult task proving claims.  So get it in writing. 

Businesses negotiating issues involving highly sensitive data may consider obtaining confidentiality statements before disclosure to prevent unwarranted dissemination of information. 

Protection of company data and customer base is very relevant with regard to employees as well.  Consider shackle-laden employee non-competition contracts to protect valuable firm assets. 

Liquidated damages (“If you do X – my damages are Y”) imbedded in critical contract provisions are generally enforceable if rooted in defensible economic principles.  Such damage clauses often serve tangible notice of financial consequences to crossing the legal lines of contractual obligations.   

Mid-way through negotiations, parties often agree on a substantial portion of issues although final terms have yet to be hammered into stone.  A written handshake document commonly labeled a memorandum of understanding is often advisable to memorialize the mutuality of agreement.  Such a document need not be written in perfect legal-speak but can be an everyman’s rendering of  agreed-upon points and should contain provisions clearly stating a final contract is subject to specifically identified contingencies. 

It is wise to flow-chart possibilities in drafting contracts.  Identification of “If X then Y” scenarios clarify potential issues to be addressed.  For example, multiple owner companies should consider the consequences of an owner dying, becoming disabled, leaving the partnership.  Written formulas are ripe for misinterpretation and hence litigation.  Simple words such as income, value, expenses and the like are subject to multiple interpretations.  Concise explanation followed by a mathematical example referenced and affixed to the contract help clarify definitions and reduce subsequent rallying beacons for dispute. 

Laboriously review finished documents.  Blind reliance on your attorney as the keeper of the gate is not sufficient to insure the contract mirrors your exact intentions.  Attorneys may understand legal principles but they may not be as business-savvy as you regarding your business or the deal at hand. 

As the TV man said – “You can pay me now – or pay me later”.  And guaranteed – paying later is much more painful.   

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.