Contract Basics
We all enter into contracts with each other in society on a daily basis. When you order a drink at Starbucks, you are entering into a contract to pay for a benefit in return: a tasty beverage. Sometimes contracts are verbal and sometimes they are written. This article demonstrates some critical features you should look out for in written contracts. As the old saying goes: “If it isn’t in writing, it doesn’t exist.”
- Deadline Dates
It is critical that when you are negotiating a contract that you specify in the contract deadline dates, whether that be for payment, for completion of construction, for delivery of product, etc. A deadline date establishes a very specific event that will trigger your ability to go into court and seek damages for the other party’s failure to fulfill their promises. The less ambiguity, the better.
- Attorney’s Fees & Costs
The general rule in California is that if your contract does not specify that the prevailing party in a breach of contract situation is entitled to recover attorney’s fees, the court will not award you attorney’s fees even if you win at trial. Now there are statutory exceptions to this rule that will allow a person to recover their attorney’s fees even without that language in a contract, i.e., employment discrimination lawsuits. However, if a statute does not apply to your case and your contract is silent on the issue, you are left footing the bill with your attorney.
We have had countless people come to our office with a great case, people owe them tens of thousands of dollars, and then learn that every penny they spend on an attorney suing in court is not recoverable. This very scenario is the reason you need a professional to look at your contracts.
If you do not have enough money to afford an attorney but you have a clear cut contract case and the contract allows you to recover attorney’s fees, an attorney will be much more inclined to take your case knowing that they will be able to recover later.
- Choice of Law and Choice of Venue
Choice of law is the state or federal law that will govern your case. Choice of venue is the place where the parties are agreeing that any disputes will be handled. For example, you can have a contract signed in Los Angeles that says that Oregon law will apply but the lawsuit must be filed in Florida. You need to watch out for this language. A Los Angeles attorney most likely is not licensed under Oregon law and will not be inclined to travel to Florida for court hearings. You would have to find a lawyer in Florida that is licensed in both Florida and Oregon, which is a mess.
If your contract specifies that the lawsuit has to be filed in Los Angeles and that California law applies, you will not be spending as much money on travel time for an attorney whereas your adversary could be spending a ton of money on travel time (especially if they are out of state). It is very important to pay close attention to this language in any contract.
- Arbitration
When you sign a contract with an arbitration provision, you are agreeing to waive your right to have your day in court. Instead, you are agreeing that a panel of arbitrators (retired judges) or a single arbitrator (one person) will be the judge and jury in your case. Arbitrations were developed to create a fast track forum for cases to go to trial right away with low costs. However, they have become very expensive over time with arbitrators charging large fees (upwards of $600-$1,000+ an hour). Arbitrations are not as efficient as they were meant to be and are often delayed for months (similar to a normal case in a courthouse). It takes about 18 months to get to trial in a normal civil case and arbitrations often last around a year (if not longer).
Depending on the type of contract, you may be responsible for paying for half of the arbitrator’s fees regardless of whether you win or not. It is very important that you have a professional look at these types of provisions to make sure you are protected.
Further, if you are dealing with a large business entity (Apple), they are most likely a repeat customer with certain arbitrators and the arbitrators may be bias toward them (Apple) since they pay their hourly fees on a regular basis, which could put you at a disadvantage. You need to consult with an attorney to see if an arbitration would make sense or not for your particular situation.
- Limitations of Damages
Finally, it is not uncommon for a contract to try to limit your damages. For example, language may be put in a contract limiting your loss of profits. Say that Led Zeppelin hired a venue for $300,000 for the night to play a concert and then suddenly that venue cancels the event. In that scenario, the contract price would be $300,000, which would be reimbursed back. However, the loss of profits from the ticket sales, merchandise, food, etc., could be enormous. If the contract says that Led Zeppelin cannot recover lost profits, they could lose all that potential money even though the venue was at fault.
This is another classic example of why you need a professional looking over your contracts.
If you have any questions about interpreting a contract or drafting one, please contact the Law Offices of Michael C. Murphy today at 818-558-3718 or email us at info@murphlaw.net.