"Iron-clad" Contracts...myth or reality?

It is not an exaggeration to say that business relationships run on contracts. Sometimes, contracts are no more than an oral agreement to buy and sell, such as when you buy an electric toaster at a garage sale. The stakes are low, there is no warranty or ongoing commitment, and so the contract is fully performed when you hand over the cash and walk away with your treasure. In such cases, there is no need to create a binding written agreement. Sometimes you are presented with a formal contract that you must either accept exactly as written, or walk away from the deal (for example, when you activate a cell phone or subscribe to a content streaming service). Other times, though, you are the driver of the deal and have the opportunity to create a contract that best serves your interests. Usually, there is a negotiation to arrive at the final terms and language of the agreement.

Contract law can be tricky, and drafting a solid contract requires knowledge, skill, and attention to detail. In adjudicating contract disputes, the courts follow "rules of construction" which can result in an interpretation of a contract provision that is not what you intended or expected. Wording and syntax are everything in contracts, and there are many hidden "gotchas" that can affect your ability to enforce what you thought the contract should accomplish. Too often, business managers attempt self-help by trying to "adapt" someone else's contract to suit their own needs. They pick out what they think are the key relevant provisions from the model, substitute their own parties and details, then weave and massage it all into what seems like a legal-sounding agreement. You might get away with this approach when there is very little at stake (that is, where the consequences of a breach or default are minor), but where there is more at stake you will likely regret the absence from the agreement of the necessary recitations, warranties, representations, and "end-game" provisions to ensure that the parties' intentions are manifest in the contract language, and that if a dispute should arise, the court will interpret each contract provision as the parties intended and as you expected. The fundamental problem with self-help contracts is the drafter's lack of the legal knowledge needed to account for all the variables and contingencies in the business relationship.

Among lawyers, the common wisdom is that the greatest value of a well-written contract is not winning in court, but keeping you out of court. If there is a breach, and the parties' attorneys can predict what the likely outcome of a court case would be, then both sides sides are motivated to work out a settlement of their dispute rather than engage in costly litigation. So it is far more cost-effective to have an attorney draft your contract than to later litigate the contract in court after a dispute arises. Nevada follows the "American Rule" for attorney fees, meaning that each party pays its own attorney fees in a litigation. If you have to go to court to enforce or defend your contract, you may win the case but still lose money after the costs of the litigation. Better to spend $500 or $1,000 now to create an iron-clad contract, than to undertake the greater risk and expense of litigating it later.

If your business involves contractual relationships, call us now for help in drafting contracts that will accomplish your goals and keep you out of the courtroom.