Negotiating, drafting, and enforcing contracts is an important part of any business’s life cycle. Contracts form the backbone of successful business relationships, but having the proper contract is critical.
A properly executed business contract should clearly outline the terms and conditions of the agreement, including the rights and obligations of each party, and provide mechanisms for resolving disputes, all while ensuring compliance with relevant Texas laws.
However, knowing the destination and route are separate things, and unaware owners and entrepreneurs can make business contract mistakes that ultimately hurt their business. Here are the top five mistakes business owners make during the Texas contractual process and how the business law team at Massingill can support you.
Mistake One: Failure to Put the Agreement in Writing
Failure to write an agreement can lead to avoidable misunderstandings and disputes with a clear, written contract. In Texas and many other jurisdictions, a legal doctrine known as the statute of frauds requires certain types of contracts to be in writing to be enforceable in court. These include contracts for the sale of real estate, agreements where performance cannot occur within one year, and contracts for the sale of goods over a certain dollar amount.
Verbal agreements, while legally binding in some cases, are often difficult to prove and can lead to disagreements over terms. For example, a verbal agreement for the sale of goods may result in a dispute over the quantity or quality of the goods agreed upon. It’s crucial to have a written contract to clearly document the terms of the agreement and protect the interests of all parties involved.
Mistake Two: Incomplete or Vague Contract Terms
Incomplete or vague contract terms can lead to misunderstandings, disputes, and even litigation. Clarity and specificity in contract language ensure that all parties to the contract understand their rights and obligations. Ambiguous language or missing details can create loopholes or areas of disagreement later on.
In Texas, state common and statutory law guides contract interpretation and enforcement. Courts in Texas will typically look to the plain meaning of the contract language to determine the parties’s intent. However, if the contract language is ambiguous, courts may consider extrinsic evidence, such as the parties’s conduct and communications, to determine the intent. Common mistakes when drafting contractual terms include:
- Using vague or ambiguous language that can create multiple interpretations;
- Failing to specify important details such as payment terms, delivery schedules, or performance standards; or
- Including contradictory or confusing provisions that create uncertainty.
To avoid these mistakes, parties should draft all business agreements carefully to ensure that all terms are clear, specific, and unambiguous. If you have any questions or concerns about properly drafting contracts, seek the assistance of a business contracts attorney to ensure that your agreements are enforceable and your interests are protected.
Mistake Three: Ignoring or Misunderstanding Contractual Obligations
Ignoring or misunderstanding contractual obligations can lead to serious consequences, including breach of contract claims and other legal disputes. It is crucial for all parties involved in a contract to understand and fulfill their obligations to avoid potential problems.
Common mistakes in this area include failing to meet delivery dates, not adhering to payment terms, or failing to perform as required by the contract. Texas courts handle breach of contract disputes by examining the contract terms and determining whether a party has failed to fulfill its obligations.
If the court decides that a breach occurred, the court may award damages to the non-breaching party. It is essential to carefully review and understand all contractual obligations and seek legal advice to avoid these issues.
Mistake Four: Failing to Include or Understand Legal Provisions
Failing to include or understand legal provisions in a contract can lead to significant legal issues and may affect the enforceability of the contract. It’s important to include relevant legal requirements to ensure the agreement is legally binding and that all parties understand their rights and obligations. Standard legal provisions that every contract should have include the following:
- Choice of law provision. A choice of law provision specifies which state’s laws will govern the contract and any disputes that arise from it. In Texas, parties can choose Texas law to govern their contract, which can be beneficial if disputes arise.
- Dispute resolution. A properly written dispute resolution clause outlines how disputes will be resolved, such as through arbitration or mediation. Including this provision can help parties avoid costly litigation.
- Severability. This provision states that if one part of the contract is invalid, the rest remains in effect. Including a severability clause can help ensure that the contract remains enforceable even if one provision is deemed unenforceable.
These clauses are generally enforceable if they are clear and specific. However, to avoid potential challenges in court, it’s vital to ensure these provisions are drafted correctly and comply with Texas law.
Mistake Five: Failing to Seek Legal Help
When drafting or reviewing contracts, consulting with a business attorney is one of the best ways to avoid legal pitfalls and ensure compliance with Texas law. A member of the experienced business contracts team at Massingill brings the following to your business matter:
- Expertise and guidance. A business attorney can provide valuable knowledge and guidance to help you understand complex legal terms and implications.
- Issue identification. An attorney can also help you identify and address potential issues before they become significant problems, ultimately saving you time and money.
- Compliance. A lawyer can ensure that your contracts comply with Texas law, minimizing the risk of disputes.
- Enforceability. Finally, a business contracts attorney can help ensure your contracts are legally binding and enforceable, protecting your interests.
Having the right lawyer throughout the contract lifecycle can help keep your business running smoothly.
Trust the Business Contract Attorneys at Massingill
Running a business can be a stressful but rewarding adventure for Texas entrepreneurs. But if you aren’t managing your business’s contracts and feeling overwhelmed, call Massingill today. Our team has decades of experience handling business contracts, including negotiation and litigation, and can be your legal guide. Call us to schedule a consultation with a team member, or complete the online contact form to get started.
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Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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