Many clients indicate that they do not want a lengthy contract simply because their vendor or customer will not sign it. As a small business, that may be understandable, but there are still some basic ter
ms you can include in a short contract that will provide some basic protection for you in the event of a dispute. Also, be sure and review your contracts periodically, and have your attorney review it as well. The time it should take a lawyer to review your contract should be minimal, but the benefits can be substantial. Until then, here are eight simple tips for small businesses to utilize in their contracts.
- Put it in writing. Although many transactions are not required to be in writing, transactions involving real estate, personal guarantees and other various types of transactions must be. Even if it is not required to be in writing, it is always advisable for the parties to reduce the agreement to a writing. Without a writing, it comes down to a “he said /she said” battle in court, which provides little guarantee of the outcome.
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- Expressly exclude any side agreements. Having the agreement in writing is only good if the entire agreement is in writing. This is an easy addition to your contract that simply states that the terms contained in the document that the parties are signing represents the entire agreement of the parties, and that there are no agreements outside the document.
space - Put any modifications in writing. Because it is difficult to anticipate what may happen six months down the road, changes may need to be made for ongoing projects or jobs. When these changes are necessary, put them in writing and have the parties sign a modification or amendment.
space - Use clear and concise terms. There is plenty of room in the contact for legal jargon and boiler plate language, but keeping the basic terms of the agreement clear and concise is key. The clearer it is for the parties, the easier it will be for a judge, juror or arbitrator to interpret.
space - Include choice-of-law and venue. Your company is likely based in one office, in one county, but you probably conduct business in many counties or states. Having your customers or vendors agree to the application of Texas law to the construction and enforcement of the contracts is very important when dealing with out of state transactions. In addition, having them agree to your home county as the place where any matters would be litigated is just as important.
space - Keep the agreement out of the courtroom. Anyone who has been involved in litigation is likely familiar with Alternative Dispute Resolution (ADR). The two most common types of ADR are mediation and arbitration. Mediation is typically non-binding, meaning that the parties have to come to an agreement. Arbitration is typically binding, where an arbitrator or a panel of arbitrators considers the case and makes a decision. Depending on the circumstances, ADR is often much less expensive and less time consuming. Include a provision that requires the parties to submit any dispute to one or both types of ADR instead of going to court.
space - If you plan to charge interest, say so. In the absence of any mention of interest, the law allows for the recovery of pre-judgment interest and post-judgment interest, but at a lower amount than you would likely charge, and often not starting to accrue until after suit has been filed. In addition, whatever past-due interest rate you charge, include the following statement: “All amounts over 30 days past due will accrue interest at the rate of 18% per annum, compounded annually, or the highest rate allowed by law, whichever is less.” This will protect you in the event the amount of interest you are charging would otherwise violate usury laws.
space - Include a provision to recover fees and expenses in the event of breach. Although the law allows for the recovery of attorney’s fees in the event of a breach of a contract, including it in your contract will make it easier for the judge or arbitrator to award them to you. In addition, without such a provision in your contract, you may have to wait longer to file a lawsuit to collect the amount owed to you, which could waste valuable time when dealing with a party who may be ready to go under. Once the decision is made to file suit or arbitrate, the faster you can act, the better your chances are at getting paid.
