Best Practices for a Better Contract
Digging into the business of 'what if?' in New YorkBy David Levine | Last updated on October 24, 2022
Once you begin litigation, you’ve lost.
Daniel B. Faizakoff, an estate planning & probate attorney with an eponymous firm in Midtown, quotes the legal axiom in relation to a client who created a web-development business 16 years ago. “My guy did all the work and the others were passive investors. He was giving away 40% of the profits, and wasn’t happy,” Faizakoff says. Unfortunately, in the original contract, there were no defined parameters for how to withdraw from the company. “Instead of a 30-page operating agreement to specify his rights and obligations, this is two-and-a-half pages that says almost nothing—it says just enough to be dangerous.”
Now the only way out is through litigation, which, Faizakoff says, “costs time, money, anxiety, it can go on for years, and you may not get the answer you want. Even if you do, you can’t get back the time. And often the money.”
A good contract is not only the cornerstone of a successful business, but contract creation also looks to the future: “As a lawyer, I am in the business of ‘what if,’” Faizakoff says. “I look at business terms and provisions and try to figure out how things can go wrong. I can’t prevent things from going wrong, but a good lawyer looks at what could go wrong and figures out ways to deal with them now in the agreement.”
Every contract is unique, of course, but all good ones follow some basic practices in contract management.
Plain English. Legalese only adds clutter and confusion. “You need to understand what each provision really means in context of how it could be litigated,” says Alexander Tuttle, a business attorney at Tuttle Yick in Midtown about contract terms. Faizakoff agrees. “It has to be understandable not just by the parties but also by the court or a third-party arbitrator who doesn’t know the parties and what the deal is. If you understand it but somebody else doesn’t, you will never get your rights enforced.”
Know which side you’re on. “Is it more likely you will want to enforce the agreement or want to get out of the agreement?” asks Steven L. Levitt, a business litigation attorney in Mineola about contract negotiation. “Most people look at contracts as neutral, but they are challenging because you potentially need to put in an out clause to protect your client—and that clause will have to be hidden, so to speak, in plain sight. You also have to anticipate how the other side might try to get out of the contract and put in language to protect against that.”
Manage expectations. Some clients think contractual obligations are “supposed to make a person do a specific thing, when it’s rare you can actually force someone to do something,” Levitt says. What should be in the contract, though, is how you get compensated when the other side does the thing you don’t want them to do. “Make sure they realize the remedies in the contract are at least as important as the contract provisions,” he says.
The force of force majeure. Force majeure is a standard contract clause that protects stakeholders from uncontrollable events, such as war or natural disasters, that interfere with normal business practice. For obvious reasons, it’s been much talked about this year. In the COVID-19 era, Faizakoff says, “We are adding more specifics—like what ‘an act of god’ actually consists of.”
Confirm everything. Writing contracts isn’t rocket science, Tuttle says about contract writing best practices, but you do have to make sure everything you agreed upon and want covered is covered. “Contracts mean something,” he says, “so take them seriously.”
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