Posted on April 03, 2012 in Business Law
Every business depends on contractual relationships with its suppliers, customers, employees, and others. Large corporations have legal departments to draft and review contracts. Most small businesses enter into contracts without prior legal review, so here are some common mistakes to avoid when creating a business contract.
Relying on an oral contract
Mark Twain once said, “Oral contracts aren’t worth the paper they’re written on.” It is not the case that oral contracts are valueless, as oral contracts are enforceable under Texas law. If both parties to an oral contract perform as promised, that oral contract is perfectly fine. The problems with oral contracts arise when there is a dispute about performance.
When a party to an oral contract wants to have a judge enforce the terms of that oral contract, it is that party’s burden to prove to the judge, by a preponderance of the evidence, exactly what the terms of the agreement were. That is often challenging, if not impossible. So it is best that business contracts be in writing.
Relying on terms discussed during negotiations, but not included in the signed contract
Once you memorialize the terms of an agreement in a signed written contract, only the written contract terms are enforceable. It does not matter what other terms were discussed during negotiations, even if the parties came to an agreement.
When a dispute arises and the matter goes to trial, when a written contract exists intended to completely embody the terms of the parties’ agreement, a party is not allowed to present conflicting terms – no matter how minor – discussed prior to or at the time of the signing the contract. The legal term for this is the parole evidence rule, which prohibits giving testimony about any expression—oral or written—made prior to the written contract as well as any oral expressions made at the time of signing the contract.
So, for example, if at the time of signing a contract the parties acknowledge that some terms are missing or incorrect, it is not sufficient just to agree to additions or modifications with a handshake. Take the time to write an addendum and sign it along with the contract.
Lack of specificity
To avoid future disputes and to properly protect the business interests of the parties, the provisions of a contract should be clearly defined. This is particularly true when non-standard performance is intended. When a judge views a contract missing essential terms, the judge imposes reasonable terms. So, for example, if you intended that your supplier ship products to you with expedited delivery, your contract must state that. Otherwise, a judge would rule that standard delivery constitutes adequate performance by your supplier.
Failing to take the time required to get the written contract written correctly
Negotiating business agreements can be complicated and time consuming. Thus, it is not surprising that when negotiations conclude and a deal agreed upon, the parties want to get to work right away and rush to sign a contract. But rushing to write and sign a contract can lead to errors and/or omissions that result in costly litigation down the road.
Failing to read a proposed contract carefully
Whether you draft a contract yourself or are presented with a proposed contract drafted by the other party, it is important to read every word carefully. Of course, it is important to verify that the contract clearly reflects the intentions of the parties. But even clerical errors, such as a punctuation mistake or the use of the word and where an or should be, can alter the meaning of an essential term of the contract.
Not seeking legal advice
Business contracts can be risky when legal issues are unknown or overlooked. Contract law is made up of Texas statutes enacted by the legislature and case law developed by the judicial system. Only experienced Dallas business lawyers can give you the legal advice your business needs when entering into contracts or when disputes arise later. We can also review your existing business contracts and prepare amendments as necessary.
Let us be your business lawyer
For a free consultation, call us at 214-441-3000 or contact Hulse Stucki online. We have Spanish interpreters available and we look forward to helping your business.
Hulse Stucki, PLLC
2912 West Story Road
Irving, Texas 75038