What Texas Small Business Organizations Should Know To Move Forward
If you own or manage a business, you’re likely to have entered into contracts with employees, vendors, small business organizations, service providers, consultants, landlords, banks and other financial institutions, insurers, and, of course, customers. To help prevent your agreements from getting you into the wrong kind of bind, here are six things you should be aware off before you sign anything. As your lawyer, we can help you negotiate and navigate these important matters.
1. “But it was free” doesn’t matter if it isn’t right for you:
Suppose you decide to search the Internet for a free confidentiality agreement form because you need to hire a consultant for your business. The point of a confidentiality agreement is to protect the confidential and proprietary information that your company uses to create whatever competitive advantage it has in the marketplace, arguably its single most valuable asset.
So, when you find a free confidentiality agreement form on the Internet that looks like it may be a good one, here are the key points to watch out for.
How the consultant gets paid and what is required for the payment.
What warranties are being made by the consultant for the work being done and how long the warranties endure.
What nondisclosure and confidentiality requirements are being imposed on each party and whether the consultant work for a competing business that does similar work or if the consulting work exclusive.
Who owns the work, i.e. who has the rights to the intellectual property provided to the consultant and the property or ideas generated by the consultant.
What rights to indemnification exist if something goes wrong or the material created with the help of the consultant is defective?
How a breach of the contract is defined and what the ramifications are of a breach by each party.
What equitable remedies are there, such as an injunction or a provision for binding arbitration?
Who is responsible for legal compliance and what the relationship of the parties is to be.
What laws apply and where is any dispute to be heard.
2. Using a form contract? Make sure you don’t put your business at risk:
Form contracts account for more than 80 percent of all agreements used to complete business transactions today. One of the biggest mistakes you can make is to assume a form contract is an agreement equitable to both parties and sign it without carefully reviewing its specifics.
First, there are no “standard “form contracts. The truth is that terms in a form contract are designed to favor the party that creates it. To limit your company’s risk, it is vitally important to be able to recognize and negotiate unfavorable provisions out of form contracts.
If you have deadlines that must be met for the work that a consultant is to do for you, make it clear and specify the ramifications that the consultant will bear if those timing deadlines are not met. In particular, provide that no force majeure (unanticipated forces of nature or labor strife) clause will affect the requirements to meet the deadlines.
3. Clear and understandable language is crucial:
You get an agreement from a new vendor. You start to read it and your eyes glaze over. “In the event that….provided, however, including, but not limited to…… For the avoidance of doubt……….” And on and on it goes. What effect will it have on you.
Of course this stuff is hard to read! So is quantum physics, but that’s because quantum physics is, in fact, hard, no matter how well you write it (even for quantum physicists). Contracts, however, should be easy to read – clear declarative sentences organized into paragraphs arranged in a logical order.
4. A little ambiguity isn’t always a bad thing:
Common sense suggests that clarity should be a primary goal in drafting contracts. But ambiguity may play a valuable role in drafting contracts. If the parties are unable to agree to specific terms on areas of less consequence- for example, a time parameter or pricing for certain items – terms like “reasonable time” or “approximate amount” can be used, and the circumstances that existed when the contract was formed and when the performance will be due may be implied to fill in the gaps. Nevertheless, try to negotiate specific and clear terms whenever possible.
5. Prepare for the unexpected. And get it in writing:
A key to avoiding litigation costs is drafting well-written force majeure, which are unanticipated forces of nature and labor strife, and make-up provisions which allow for substitute services or products or additional time to supply them in your contracts.
Failure to have these provisions reviewed during negotiations may lead to either having to pay damages to end-users or paying your attorneys later to litigate poorly drafted and inconsistent force majeure and make-up clauses in your contracts. Missing key terms or inconsistent definitions ultimately leads to dissatisfied customers, costly litigation, or worse yet, both.
6. Want a contract that’s binding? Say so:
It almost seems redundant. Why would you need a paragraph saying that the contract is binding? After all it’s a contract right? Well, not so fast.
A noted federal judge and scholar on the topic of contracts recently decided a case in which he explained that not every document which expresses a mutual understanding is or should be enforceable as a contract, especially when that document includes language that specifically disclaims the intent to form a contract. That, after all, is what a true, non-binding letter of intent should be.
Often, parties may write that only certain provisions of the documents are enforceable or the entirety of the document only becomes enforceable if certain conditions or events occur. Be sure your contract states in writing that it’s binding, otherwise, it may not be.
Most contracts do not have to be in writing to be enforceable. In Texas some contracts that have to be in writing are:
Contracts for sale or lease of real property for more than one (1) year
Contracts of employment for a term of one (1) year or longer
Contracts for sale of goods of over $500.00.
Be aware that reasonable attorney’s fees are recoverable in a lawsuit for breach of contract, whether oral or written. Texas law allows this even if contract is silent.
In commercial context the Uniform Commercial Code will imply terms if the contract between the parties does not address those terms.
Quantity and price need to be agreed to however.
Interest will accrue by law thirty (30) days after payment is due at the rate of six percent (6 %) per year, simple interest, on amounts remaining unpaid.
These are some of the issues that a knowledgeable attorney on business matters and contracts can assist you.