Top Ten Contracting Landmines

By Mark O. Morris, Esq.

In good times, parties to an agreement may decide their time and money is better spent moving on to greener pastures. In harder times, people often decide those greener pastures are in court. In such a time, when parties get out their agreements, dust them off, and see what rights they have, they are sometimes shocked to learn the pasture has been plowed under already by the other party. The following are my thoughts on common contract errors.

1. Failing to ensure adequate insurance coverage with a contracting party – It was often said during the Civil War that confederate money was not worth the match to burn it with. The same can be said of a judgment against a company with no assets. If you are entering into a contract with a person or entity who has the potential to make mistakes resulting in losses to you, and those risks are insurable, require the other party to obtain an insurance policy to cover those risks.

2. Sloppy attention to waiver provisions – In Utah, the common law of waiver requires a showing of real intent by a party to waive contract rights. Clear language in the contract requiring strict compliance with terms and specifications, unless a waiver is agreed to in writing, will help to preclude an “accidental” waiver.

3. Failure to select a venue of your choice – When an out-of-state party brings suit on their home turf, it creates a psychological and economic burden on you. This can be avoided very simply, by inserting a clause in the contract that requires any disputes arising under the contract to be adjudicated within the state of Utah.

4. Accepting “form” contracts – Someone once accused me of “over lawyering” a real estate lease because I had crossed out and added language on nearly every page of the lease. The problem was that the lease was 30 pages long. That lease had already been “over lawyered” before I laid eyes on it. It’s natural to simply sign a form lease, because a “form” suggests the document has already been thoroughly reviewed. That does not mean it is fair. You are free to insist on changes.

5. Failing to select a preferred dispute resolution process – Maybe you like arbitration, maybe you like mediation, maybe you like to go to court and fight it out. Put some thought into the forum where you want to try to resolve any disputes under the contract, and select what suits you.

6. Failure to define “default” appropriately – If you are going to be the obligor on a contract, you have the option of requiring that you be given notice of a claimed breach and an opportunity to cure before a “default” can be declared. You can also insist that the notice of late performance be actually received by you, rather than just put in the mail. If you are going to suffer the consequences of breaching a contract, it never hurts to give yourself a grace period and a requirement that you be notified.

7. Not paying attention to damage limitations – It is a sad day when someone comes to me claiming that their contract has been breached, but the contract limits the amount and kind of damages that are recoverable. Be wary of contract clauses that limit what you are entitled to get if the other party breaches the contract.

8. Ignoring a breach or terminating event – This goes more to conduct after the contract has been signed, but if you have a forgiving nature you should at least paper the fact that someone has breached the contract and that you are willing to forgive them just this once. Repeated failures to note a breach or enforce a provision could accumulate into a defense that deprives you of your ability to enforce the contract.

9. Not paying attention to notice provisions – Many contracts provide a specific way of giving notice to the other side, including name, address, specific means of delivery, actual receipt of the notice, etc. If such a provision in a contract exists, a phone call, lunch meeting, or even dropping something in the mail may not constitute adequate notice under the contract, and so the party may avoid the obligations that would otherwise arise on receiving notice.

10. Not using a lawyer – Of course this seems very self serving, but not using a lawyer to at least review a contract and point out problems with it could, when the time comes to dust the contract off and go to court over it, lead to the unhappy realization that you have failed to appreciate the significance of some of the contract provisions. A good contract lawyer will be able to help you spot the landmines and either dig them up or jump over them. A court can provide a greener pasture than the one you’re in, but no one wants a pasture with landmines in it.

Mark Morris is a partner with the law firm of Snell & Wilmer in the Salt Lake City office where his practice focuses on general commercial litigation, especially in complex contract disputes of all kinds, construction, real estate, professional liability, and business torts including those under federal and state statutory schemes. He may be reached at 801-257-1904 or mmorris@swlaw.com.