When embarking on just about anything important, choosing what to study and where to study it, starting a family, having a vacation or an adventure, starting a business, you are much more likely to have a successful outcome if you do thorough, well researched planning beforehand. The same goes for businesses that agree to do business together or with individuals. The most common reason for the relationship going sour, leading to a potential breach of contract situation and litigation is a poorly drafted contract. A well-drafted contract, while no guarantee of a breach happening at some stage, is the best way to pre-empt that from happening.
What is a breach of contract?
Every business contract involves some sort of agreement, most commonly to exchange a service or goods for money or something else of value. A potential breach of contract occurs when one or the other party fails to deliver the service, goods or the payment for the service or goods. The breach may be minor and can be resolved easily, or serious, especially if the reason for the disagreement is contested. Serious breaches of contract may mean that the party which believes it has suffered a loss as a result of the other party’s perceived failure to keep to their side of the agreement may sue the other party for damages.
Options if there has been a perceived breach of contract
Contracts are not enforceable unless agreement has been reached during the contract negotiation phase. In Massachusetts, like other states, three main elements must be present before a contract is legally regarded as enforceable. These three elements are:
- there was an offer to provide some sort of service or goods by one of the parties;
- the offer was accepted by the other party;
- the service, or goods supplied, is specified, as is the payment to be made on receipt of them. This is known as consideration.
Where there has been a breach of contract, the breach may lead to an attempt to resolve any dispute by mediation or through litigation. Necessity to try mediation may be written into a contract agreement as a step to be used before litigation is pursued.
Litigation can prove to be expensive, especially if it involves legal fees for attorneys representing the parties and court fees. Litigation following a breach of contract that cannot be resolved in any other way can be often avoided if the contract had been more carefully worded.
Oral or written contracts –which is better to avoid potential breach of contract?
A contract can either be oral or written. An oral contract may be perfectly valid and enforceable, but has the major disadvantage that it relies on good memory of what was agreed to in it. In time, as memories fade, the potential for disagreement becomes more likely. Although in many cases, the two parties to the contract may be honest and well-meaning, the fact that the interpretation of the contract may depend on who said what or what each party remembers of what was agreed to, may lead to disingenuous behavior by one of the parties. Oral contracts make it harder to argue that a breach of contract has occurred if litigation is pursued.
The conclusion is that in any decision about the form of a contract to be made, written contracts, which are signed after the agreement phase, are likely to be less contentious than oral ones and, everything else being equal, more likely to avoid litigation.
Drafting a clear and well-written contract is important to avoid litigation
A business law attorney can be used to help draft an enforceable contract that is designed in such a way that it is less likely to lead to disputes and a potential breach of contract.
As an enforceable contract must have the three elements described above, it is useful to consider how to improve the drafting of a contract by examining each element in turn.
- The offer
Offers should be made clearly identifying:
- who is going to provide the services or goods;
- what services or goods are going to be supplied;
- who is going to be the recipient of the services or goods;
- when and where are the services/goods going to be provided.
The clearer the details in the offer made, the less likely that it might be misinterpreted later on after the contract has been agreed to.
- The acceptance
The acceptance is made by the party who will be paying for the services and or goods provided by the other party who made the offer. The authorization of acceptance should make it clear that each part of the offer, i.e. as given above, that agreement is made for each section of the offer. Partial acceptance would mean that the contract was still in negotiation phase and not enforceable. If business is allowed to continue with only partial acceptance of an offer, then any dispute cannot be deemed a breach of contract and litigation pursued to resolve the dispute would unlikely succeed.
- Consideration
Consideration is the payment in money or other forms of value that the accepting party gives in exchange for the services and / or goods supplied by the party offering to provide them. This element of the contract should make it clear exactly how much should be paid and how it should be paid, e.g. in cash, check, bank deposit, PayPal etc.
Other elements of a contract
The contract may also include other elements which may help to avoid expensive and unnecessary litigation if there is a dispute and a perceived breach of contract. A required mediation attempt may be included in the contract agreement as a binding step if there is a dispute as mentioned above. There are also two commonly used clauses included in a well-drafted contract that may help to avoid litigation. These are:
- an opportunity to cure clause; and
- a force majeure clause.
The opportunity to cure clause is basically a carefully worded statement that allows the party that is alleged to have committed a breach to make good the failure in a certain time frame. Massachusetts law can make this type of clause enforceable.
The force majeure clause is a clause that forgives the party that has failed to keep their side of the contract when there is a reasonable reason beyond their control that has prevented them from fulfilling the agreement. For example, a major weather event, earthquake, social or political disturbance, may be cited as a reason for not adhering to the terms of the agreement.
The role of a business law attorney
Considering the importance of a well-drafted contract in avoiding litigation, it is more economical in the long run hiring a business law attorney before regular exchange between two parties begins to help with the drafting of a well-drafted contract agreement than hiring the same attorney to help with litigation after an unresolved dispute has arisen.