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One of the main reasons for entering into a contract is to prevent disputes in the future. But, to effectively serve its intended purpose, a contract needs to be comprehensive. If a contract omits relevant terms or overlooks relevant scenarios, it can invite disputes rather than preventing them—and, in doing so, it can lead to unnecessary costs and risks for both parties.
Here are three important ways that comprehensive business contracts help to minimize the risk of costly disputes:
Ensuring that the Parties Share a Mutual Understanding of Their Deal
In many cases, disputes arise because the parties to a contract have different expectations. This results from a lack of a mutual understanding of the terms of the deal.
Negotiating a comprehensive contract helps ensure that the parties share a mutual understanding when they sign. If both parties actively participate in the negotiation process and work closely with their counsel to craft terms that accurately reflect their intent, this will allow for any misunderstandings to be identified and addressed before the parties into a formal business relationship. Resolving misunderstandings up front is invariably more cost-effective than resolving them in the future; and, if the parties are not on the same terms, knowing this up front will allow them to make informed decisions with their long-term best interests in mind.
Providing Appropriate Remedies Without the Need for Litigation
A comprehensive business contract will also provide for appropriate remedies without the need for litigation in many cases. Consider, for example, a fairly typical supplier contract. The supplier must deliver its product by a certain date; and, if it does, this trigger’s the buyer’s duty to pay.
But, what if it doesn’t? What if the delivery date passes and nothing happens? If the parties negotiated a comprehensive contract, the contract may include remedies such as a reduction in price, a right of rescission, or a right to obtain a default judgment (and liquidated damages) in court. If the parties did not negotiate a comprehensive contract, however, then the buyer’s options for asserting its rights may be far less straightforward. This will invite a dispute; and, unless the parties are able to come to terms, litigation may be their only option.
Encouraging (or Requiring) Mediation or Arbitration as an Alternative to Litigation
Comprehensive business contracts frequently include alternative dispute resolution (ADR) provisions that call for mediation or arbitration in the event of a dispute. While including a mandatory ADR provision in a contract may not prevent a dispute entirely, it can help minimize the costs involved in the dispute resolution process. It can significantly shorten the dispute resolution timeline as well. Additionally, as ADR (and mediation in particular) tends to be less contentious than litigation, it can also help to facilitate an amicable resolution that preserves the parties’ business relationship in many cases.
Contact the Business Lawyers at Rendigs
Do you need a comprehensive contract for a proposed business relationship? If so, we can help. To schedule an initial consultation with a business lawyer at Rendigs, please call 513-381-9200 or tell us how we can get in touch online today.
