Turner Padget Insights

Be Careful What You Sign: Red Flags in Commercial Contracts

Posted On May 19, 2015

When businesses sign a contract, they’re usually focused on the opportunity it represents – a new customer, a better supplier or a partnership that expands their reach. Unfortunately, when we, as lawyers, see some of these same contracts, it’s after the air has gone out of such expectations and a deal has soured. 

While our best advice is to have every contract reviewed by your attorney, we realize that most businesses aren’t going to do that for every agreement. If there is a lot of money – or risk – involved, consider asking your attorney to review a contract – a process that usually isn’t time consuming for legal counsel familiar with your business. 

However, in those cases where you choose not to make a call to your attorney, here are some things to watch for based on our experience. 

Recovery of attorneys’ fees 

We like to see a clause in contracts that allows the prevailing party in a lawsuit to recover attorneys’ fees. When a breached contract only involves a few thousand dollars, the cost of enforcing it may be more than the possible recovery. If you’ve included a provision that allows the recovery of attorneys’ fees, it places you in the position to enforce the contract. 

Choice of law 

Many people overlook designating the forum for resolution of disputes. 

Differences in state law can be significant in resolving disputes, and there’s also the expense and convenience factor. If you’re in South Carolina and you have to go to an Idaho court to resolve a dispute,

that means you’ll have to hire a lawyer in Idaho and deal with the inconvenience of a long-distance courthouse. 

Beware of computer-generated contracts 

You can get anything you want on the Internet, but be careful in using a contract that wasn’t created with your business model in mind. 

Recognizing the differences in state laws also applies here. A contract that works well in Georgia may leave you open to exposure in South Carolina, and only someone well-versed in contract law can spot such provisions.

A contract should be clear 

We see situations where a party to a contract knew exactly what they meant to imply, but that message or details aren’t reflected in the final agreement. Generally, a court is going to interpret a contract literally, reading exactly what it says. 

Often, it’s helpful to have others read a contract, especially if they have knowledge of the business. If a deal falls apart, contract details will matter.  

When you must bring in your lawyer 

There are several situations where you really should obtain legal counsel. 

The first is when the dollar value of the contract is high. A bet-the-business deal must be letter perfect.

The second situation is when there are inherent risks, and this includes dangerous products, anything that could cause environmental harm, trucking and other situations fraught with potential liability. 

Finally, if you expect to use the same contract on a regular basis, it’s worth having it reviewed. 

Contract review is seldom expensive, especially if you have an ongoing relationship with an attorney or a law firm. An attorney can point out risks and how to minimize them, potentially saving you from a more extensive engagement with a law firm if a contract goes bad.    

C. Pierce Campbell is a shareholder in Turner Padget’s Florence, S.C. office and chair of the firm’s Business Litigation Practice. He focuses on business and commercial litigation, as well as probate litigation, and his clients range from small partnerships to large corporations. He may be reached at (843) 656-4429 or by email at pcampbell@turnerpadget.com.