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Protect Your Bargains

What to do when your partner won’t honor a contract

Every day in the business world, companies sign contracts, honor their part of the bargain and then discover that the other side isn’t living up to its end of deal. Most businesspeople enter into agreements assuming that the other party has the same intention and ability to honor the contract.

All too often, you learn – the hard way – that integrity and performance is a one-way street. But you can protect your bargains.

Due diligence

You should know with whom you’re doing business. Long-standing relationships can help, but they are not foolproof. One client just discovered that he had been doing business for a few years with someone who was recently indicted for serious crimes.

Even though our client had nothing to do with the alleged felonies, the mere association with a potential felon threatened to taint our client’s business and reputation. Further, the alleged crimes jeopardized our client’s ability to obtain financing, attract investors and operate his company at the same level of profitability.

Of course, finding out you’re in business with alleged crooks usually happens only in Grisham novels. Still, plenty of entrepreneurs learn all too late that they are doing business with people who don’t honor deals or would rather fight than deliver on a bargain.

But conducting due diligence can weed out potential problems. Consider conducting background checks and obtaining financial statements and references for the other party. Sometimes, we have checked court records and found lawsuits that demonstrated the other side either can’t or won’t fulfill their bargains. Likewise, if you talk with people who have dealt with certain companies, you may discover that the other side enters into deals easily enough, but then spends all of their time “retrading.” That is, once they’ve locked you into a deal, they attempt to renegotiate the terms, instead of living up to the bargain.

Spell out your protections

Draft a contract that not only captures the business terms, but also protects you if the other side does not deliver. The protections can vary. You need provisions that cover the “what ifs” and provide meaningful remedies if the other side defaults. Often, you will want to establish whether you will go to court or engage in arbitration – each has its pros and cons.

You should also draft a clause entitling you to reimbursement of your attorneys’ fees if you prevail. Contrary to popular misconception, you are not automatically entitled to payment of your legal fees if you win.

Jack Garson is the founder of Garson Claxton LLC and leads the firm’s business and real estate practice groups. Jack serves as a legal advisor for numerous local, regional and national companies, focusing on business transactions, commercial real estate, commercial leasing, and construction law. In addition to providing legal counsel, Jack serves as a strategic advisor and negotiator for many clients, providing guidance on issues such as the growth and sale of businesses, liability and risk reduction, the hiring and retention of key personnel, and protecting and enhancing profitability, as well as negotiating the resolution of complex commerce.

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