Reminder To Contracting Parties: An Ounce Of Prevention Is Worth A Pound Of Cure

Kenneth L. Moskowitz, Esq. – Brown, Moskowitz & Kallen, P.C.

Businesses will no doubt feel the pressure to make deals as we continue to emerge from the COVID-19 crisis. While that reality is understandable, business owners and senior managers would be wise to resist the temptation to complete potentially problematic deals and, instead, should remain faithful to the contracting principles that led them to succeed before the crisis and economic fall-out.

Fundamentally, contracting parties must be careful to complete the diligence necessary to ensure that the proposed “business deal” makes sense. As every business owner well knows, there simply is no substitute for such investigations, and shortcuts often lead to poor and regrettable deals. That basic principle is no less important today than it was before the crisis and economic downturn.

Once being satisfied that a deal makes economic sense, contracting parties should take the time and maintain the discipline necessary to ensure that the deal made in principle is documented accurately, and that all of the material terms and conditions are clearly stated. Among other things, the contract must include a precise description of the subject goods, services and deliverables, as well as the schedule for such performance and for the required payments. Depending on the circumstances, the inclusion of an attorneys’ fee/cost of collection term, arbitration and/or choice of forum provisions may be deemed provident, if not necessary. Again, as business owners and their contract agents know, even what may appear to be a “good deal,” if not properly documented, can lead to a disastrous result.

Contracting parties should not be satisfied that the written agreement “more or less” memorializes the parties’ agreement, or take for granted that the other party to the contract has the same understanding and/or will faithfully discharge its contract responsibilities unless those duties are clearly and plainly recited. The hope or notion that once an ambiguous contract is signed the other party will perform as you expect, and/or that the other party can be counted on later to resolve contract ambiguities in good faith and on a fair and equitable terms consistent with your intent at the time of contracting, may not be realistic. The assumption of such risk — risk that may have been avoidable — would be regrettable and certainly could be costly.

Finally, while each potential contract negotiation has its own dynamics, fair and equitable contract terms should be negotiated, not dictated by one party. Even where one party to the contract is recognized to enjoy a superior bargaining position, the other party should resist a “take it or leave it” ultimatum that may leave it exposed. In that circumstance, the party in the inferior bargaining position should carefully consider pressing for the negotiation of the essential terms that are necessary to make the deal fair to both parties or, at the very least, “chipping away” to make the agreement more palatable.

Contract litigation is often the result of some failure in the negotiation and/or documentation of a business deal. Business litigation is time consuming, expensive and can have the detrimental effect of diverting the parties’ attention from the management and operation of their businesses. While the potential for litigation cannot be eliminated, completing the requisite diligence and exercising the needed discipline in the negotiation and documentation of the business deal should reduce that risk.

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©Copyright 2020, Brown Moskowitz & Kallen, P.C. All rights reserved. This article is for informational purposes only and is not intended to constitute, and does not constitute, legal advice.

Mr. Moskowitz is a former prosecutor and is a founding partner of Brown Moskowitz & Kallen, P.C., in Summit New Jersey. He represents clients in diverse business disputes, commercial litigation, internal investigations, “corporate divorce” matters, insurance coverage litigation and other business related disputes.

For further information, please feel free to contact Mr. Moskowitz by email at klm@bmk-law.com, or call him at 973-376-0909.