Breach of contract disputes are extremely common. Buffington Law Firm's Orange County breach of contract attorneys have handled countless business disputes deriving from breach of contract. In this brief article we will discuss some of the common issues and pitfalls that Buffington Law Firm's business litigation attorneys often deal with in breach of contract cases.
Nearly all of the time when parties enter into a contract, they are not thinking about future litigation and they do not want or expect litigation. Nevertheless, it happens. When it does, sometimes the contract between the parties, which seemed so clear-cut when they inked the deal, suddenly becomes a minefield of unexpected problems.
At Buffington Law Firm, our experienced breach of contract trial attorneys recommend that if you are entering into an important contract, you should have an attorney review it before you sign it. Our Firm offers this service at a very reasonable price. Our corporate counselor program offers this as a regular service to its members, or you can hire us on a one-time basis to review a contract. Here are some of the pitfalls to watch out for. It is rare that a contract does not contain at least one of these components. This list is in no way complete.
1. Failure to Identify the Parties Accurately. A common error in contracts, especially contracts drafted by non-lawyers, is to fail to clearly and accurately identify who the parties to the contract actually are. This may sound simple, but for example, sometimes one side intends to create a corporation or limited liability company to do business concerning the contract but has not yet done so at the time of signing. Under this scenario the party signs the contract as though this entity already existed. Not uncommonly, this entity never gets formed or gets formed under a different name, or as a different type of entity than that which appears on the contract. This can vastly complicate matters if the parties later have a breach of contract dispute. Another common error is for one side to sign the contract personally while intending only to sign as an officer of a corporate entity. This can lead to the other side claiming that the signer is personally liable on the contract along with his or her corporation. Paying attention to these kinds of details is crucial. Needless to say, this can greatly increase the risks of litigation and the personal exposure of the signer.
2. Careless Guarantees on the Contract. Too often an individual will agree to personally guaranty the performance of one party to a contract. It may seem obvious when reading this, but there are few more risky things that an individual can do than to sign a personal guaranty on a contract. The guarantor will inevitably be named in any breach of contract lawsuit in which the party being guaranteed is sued, and guarantees are usually very enforceable. When a stockholder of a corporation or other entity gives its contract his or her personal guaranty this does away with the protection of the "corporate shield," at least for the unlucky person who guaranteed the contract.
3. Hostile Venue and Jurisdictional Clauses. One of the most common errors or pitfalls that a contract may contain is a hostile venue or jurisdictional clause. This is a clause that provides that in the event of a breach of contract lawsuit it must occur within the venue and jurisdiction of a certain state. All too often businesspeople assume that such a provision is "boilerplate" that constitutes "standard language." Not so. In fact, a venue and jurisdictional clause just about always represents an attempt by one side to slip in a clause that is very favorable to that side. For example, an Illinois business may enter into a contract with a California business in which the Illinois firm will deliver goods in California. Normally, in the event of a breach of contract lawsuit, a contract like this would be governed by California law, as the place for performance of the contract. If the contract provides for Illinois venue and jurisdiction this means that if the California firm sues, or is sued, for breach of contract the suit must occur in Illinois. This can have far-reaching consequences. Illiniois is likely a distant, inconvenient forum for the California firm, while it is the Illinois firm's home turf. The California firm's attorneys are probably not licensed to practice in Illinois. At a minimum it will likely be necessary for the California business to obtain local Illinois counsel, which will represent a considerable extra expense. Witnesses will have to travel to Illinois for any trial. And never forget about the very real possibility of being "home towned" in court, which means exactly what it sounds like. It happens. While it is sometimes possible to defeat a venue and jurisdiction clause, the general rule is that courts will enforce them.
This article will be continued at Part 2 in our next weekly blog article.