General Principles

Contract disputes commonly arise because of one or both of the following: 1) the parties fail to address all possible circumstances, sometime deliberately and sometimes inadvertently, and 2) ambiguous provisions.

It is well worth your time to review a contract several times to avoid these problems. Leaving key items, such as price, time frame, dates, etc. open for later discussion may render the contract unenforceable or cause delay if the two sides cannot reach agreement on them later.

Not addressing all possibilities, even unlikely ones, can lead to problems if those possibilities occur. A provision that is ambiguous can lead to arguments, especially where each side has, unknowingly to the other party, mentally interpreted the provision in its favor.

These problems are what lead to the adage "get it in writing": although most oral contracts are valid, there can be immense problems proving their terms. This is also a good reason for using plain English and avoiding legalese: if you aren't sure what a provision means, then you may well have trouble enforcing it, or you may have it enforced it against you in an unexpected manner.

Using someone else's contract can bring its own problems if that contract has provisions that do not apply to your situation or does not address all the issues you face.

With that background, we can look at some more specific contractual provisions. While there is not space here to delve into particular types of contracts–like those involving licenses, employment, leases, consumers, confidentiality etc.–there are certain clauses that are useful in most contracts.

Obligations

Specify exactly what each party is to do, and when. State exactly when payment is due, how payment is to be made, and what happens if payment is not made on time. In situations where you are receiving a percentage, it is generally wise to include a provision allowing an audit of the books. If sales or other taxes are involved, be sure to specify who pays the taxes.

Nondisclosure

Sometimes in business it is necessary to share confidential or proprietary information in order to explore or negotiate business opportunities. This, however, has some risk in that the other party may use your information to their advantage and your disadvantage. In these types of situations it is necessary to condition disclosure of your business information on their promise to keep this information confidential, and to not use the information in an improper manner.

Termination

A termination provision can be the last line of protection if the contract is not working out for you. Many times, a party will want to be able to get out of a contract easily while making it difficult for the other party to get out. Termination is usually allowed with some kind of required notice and notice period. You may also want to ensure that certain provisions, such as confidentiality or outstanding payments survive any termination.

Exposure

Any party providing goods or services needs to consider adding provisions that limit warranties. With contracts involving goods, the Uniform Commercial Code automatically creates certain warranties unless there are specific disclaimers of those warranties. Some of these warranties– such as the warranty of fitness for the buyer's purpose–may be difficult for the seller to meet. Warranties can also be a problem for parties providing services. In addition, a party providing services or goods may want to include a provision limiting liability so that there is no exposure for the other side's lost profits etc. in the event of a problem.

Enforcement

Idaho has certain statutes pertaining to attorneys fees incurred in litigation and those should be considered in drafting your contract. Arbitration clauses are something else to keep in mind. Arbitration is generally cheaper and faster than litigation. On the other hand, arbitration awards tend to be smaller than jury awards, so one consideration is whether you are more likely to be a plaintiff or defendant. Arbitration is particularly useful in a relatively small industry or where the parties are likely to be doing business again in the future.

Mediation is another option that can be used with or without an arbitration clause. The advantage is that many case that are mediated are ultimately settled without litigation. The disadvantage is that if the matter does not settle, you still have the cost of arbitration or litigation.

Conclusion

If your contractual relationship goes well, signing the contract may be the only time you actually see the contract. If the relationship does not go well, you may become painfully familiar with the contract. Be sure you cover all your bases and do everything possible to avoid future disputes. Counsel with an attorney, even if only for a couple hours, can go a long way in avoiding future problems and expensive litigation.