Willcox, Buyck & Williams, PA Blog

Sunday, July 23, 2017

3 Top Reasons Why Business Contracts End Up in Court

Any good business person needs to stay aware of current trends, and one important trend to be on top of is why business contracts end up in court.  Without the help of a contracts lawyer, it’s hard to avoid pitfalls without knowing where the pits are. Based on the most recent research collected by the federal Bureau of Justice Statistics in 2001 and 2005, there are some very common trends in business litigation.  Among the highlights:

  • The majority of contract litigation (61% of cases) involves either a seller suing for payments that are owed, or a buyer suing to get their money back for a product or service they had a problem with;
  • One-third of contract cases involve an individual suing a business; one-quarter involve a business suing another business; and
  • The vast majority of cases filed (99%) are not resolved by trials, and nearly half are settled or withdrawn.With this information, it’s easy to see that if your business is going to be involved in a legal dispute about a contract, it will almost certainly be over a monetary transaction, and will almost certainly be resolved outside of court.

Why are so many cases resolved outside of court?

According to BJS reports, nearly 80% of cases are resolved for one of three reasons:

  1. Settlement
  2. Withdrawal
  3. Default judgment

Cases settle for all kinds of reasons.  One frequent cause of settlement is uncertainty—when it’s not clear who is right or which way the court will rule, often parties choose to control the case’s outcome by settling rather than allowing the court to decide, which could potentially go very poorly for either side.  On the other hand, many cases are withdrawn for the opposite reason—when it’s clear that one side has the law on its side, the party suing that side will often realize the futility of their lawsuit and withdraw it from the court.  Similarly, when parties know they have no arguments that will persuade the court, they frequently simply fail to appear to defend themselves, causing the judge to issue a ‘default judgment’ for the other side.

How can I use this information to protect my business from litigation?

With all of this information in mind, it becomes clear that one of the most critical steps a business can take to protect itself from litigation is to eliminate uncertainty from its contracts.  After all, if a contract clearly indicates what the two parties agreed to in a given situation, there is usually nothing left for the court to decide.  Common areas of uncertainty include:

  • Lack of Specificity.  A good contract needs to be explicit on every important detail.  If goods are to be delivered, when will they be delivered, and by whom?  Where will the goods come from?  Do they need to be of a particular quality or have other specific features?  Leaving out any detail can lead to uncertainty, which can in turn lead to court.
  • Lack of Exhaustiveness.  Even contracts that are specific in their details can have problems if they aren’t thorough enough on what situations are addressed.  In our goods example, what happens if the goods are late?  What if most are on time but some are late?  Who will bear the risk of loss or damage while the goods are being transported? Having an expert attorney assist you in drafting your contracts will help you identify and address possible future problems before they arise, increasing the level of protection your contract provides.
  • Lack of Participation.  Finally, it’s important that all sides of the contract are involved in its negotiation.  After all, a contract is an agreement between the parties, and blindly agreeing to the contents of a contract can be a recipe for disaster.  Taking input from everyone involved can help prevent unrealistic expectations from being incorporated into the contract, minimizing the potential for one side or the other to fail to do what was expected of it and precipitating a lawsuit.

Like most things, expertise in writing ‘bulletproof’ contracts can only come from experience.  Our attorneys have honed their skills through years of negotiating and litigating business contracts, and would be happy to assist you with your contract problem.  If you have questions or concerns about a contract, contact Willcox, Buyck & Williams, P.A. today for a consultation.


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