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Lessons Learned the Hard Way: Business Contracts

We've all heard the saying that "an ounce of prevention is worth a pound of cure." Those words are particularly apt in the context of business contracts, where careful consideration at the outset can prevent major headaches in the long run. Being sued for breach, or suing another party on the same basis, is expensive, time-consuming, and energy-depleting. Most contract disputes could be avoided, however, if the parties took the time to make their intentions and expectations clear to each other from the start.

Take for example the case involving a food buyer who ordered more than 200 tons of chicken, expecting to receive young chickens suitable for broiling and frying. When the chicken arrived, it was actually older, stewing chicken, and the disappointed buyer sued. The court was called upon to decide what reasonable parties would have meant by the use of the term "chicken."

After listening to the testimony of several experts, the court concluded that the use of the more generic reference in the contract did not entitle the buyer to a particular type or grade of chicken. The experts had explained that people in the trade typically specify the kind of chicken they intend to buy and sell. Accordingly, in that case, the seller won, but only after protracted litigation. Both the buyer and the seller could have saved themselves a lot of aggravation by being more specific in the contract.

In another case, a crop grower and a food processing company entered into a contract whereby the food processing company agreed to harvest hundreds of acres of vegetables grown by the crop grower, except in the case of "adverse weather conditions." The crops had been planted at staggered intervals so that not all harvesting would have to take place at the same time. The weather that year was unseasonably cool early in the season, but it suddenly became warm and sunny, causing all of the crops to mature at once. The food processing company could not harvest all of the crops simultaneously, and the grower sued for breach. The processor argued that it was off the hook based on the "adverse weather conditions" clause, and the court agreed. Although the weather had been what many would deem ideal, and it was probably not what the crop grower had envisioned as "adverse weather," it was not perfect weather for harvesters. Thus, the contract language did in fact excuse the processor's lack of performance.

These cases illustrate the importance of clarifying contract language before signing on the dotted line. Make sure that you and the other party agree about the meaning of any potentially ambiguous words or phrases. Even a misplaced (or unnoticed) punctuation mark can dramatically change the scope of your rights and obligations under a contract. Watch also for commonly misused words. When you agree to bimonthly payments, for instance, do you understand that you will be paid every other month? Or will you expect to be paid twice a month -- semi-monthly?

Because so much is at stake, the safest and most prudent course of action is to have an attorney experienced in contract law review and approve all agreements before you sign them. It may require a little extra time and money at the outset, but those expenditures pale in comparison to what you stand to lose in a full-blown contract dispute.

Next Steps
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