Know the Fine Points of Fine Print

Posted on May 11, 2014 in Business Transactions

Not knowing what the fine print on your contract says could take a costly bite out of your business.

Yes, I know you’re a busy business owner. Yes, contracts can be tedious. And, yes, I know that sometimes the font used on these documents requires an electron microscope to read it properly. But as a business person, the law assumes that you’ve read the contracts you’ve signed and understood their terms–even if you didn’t.

That’s why you’ll want to know and understand the “fine print” of an agreement–whether you’ve created the agreement or you’ve received an agreement someone else created (where you may not have the leverage to change it).

If your payment terms and deliverables are the “steak and potatoes,” the fine print is the “veg.” Maybe not as hearty or robust as the meat, but it can have a profound effect on the whole plate. Signing a contract without reading the fine print is like coming to the dinner table blindfolded: You could be served your least favorite vegetable, you’ll have no opportunity to ask for something different, and the experience could ruin the whole meal.

Let’s look at a few real-life examples of how fine print had a profound impact on a small business’s bottom line.

  1. Force majeure. Literally, this means “major force.” It addresses situations where something completely out of your control got in the way of your ability to do what you promised under a contract. That could be a fire or flood that destroyed your premises. Or a labor strike. Force majeure provisions in an agreement can give you a valid excuse for not performing in a timely manner–or at all. “Marian” had this term in her contract, allowing her to cancel in the event of a force majeure. She needed it on Sept. 11, 2001, when she was forced to evacuate her office building and, being so close to Ground Zero, couldn’t re-enter her premises for more than four months. By being able to cancel certain contracts (without, technically, “breaching” them), she saved tens of thousands of dollars.
  2. Jurisdiction. Among other things, jurisdiction can refer to the geographic area where a case will be brought. This can make a huge difference to your pocketbook. “Bonnie” was a consultant, hot to do business with a Fortune 500 company. She signed the agreement, performed the services, and then got stiffed. She marched into my office, ready to sue . . . until I pointed out the jurisdiction clause in the contract required her to bring her lawsuit in Denver, where the Fortune 500 company had its headquarters. She would have had to find local counsel there, and incur the costs of schlepping back and forth from New York–all of which would severely undercut her profit margin on any legal recovery.
  3. Attorneys’ fees. Under American law, the expectation is that each side will pay its own attorneys’ fees if a case goes to court. For small businesses that need to enforce their rights (as in Bonnie’s case), this could be cost-prohibitive. Courts generally won’t award you legal fees in contract disputes unless you specifically provide for it in your agreement.  But if you have it, you can get it. This was a great boon for Theresa, who needed to sue her ex-business partner. Her partnership agreement included an attorneys’ fees provision, which provided a great deal of leverage in settlement negotiations.

There are other terms you may encounter, depending on your situation: indemnification, releases, injunctive relief, waivers, assignment, liquidated damages. In the rush to get the deal done, business owners tend to gloss over the terms. Don’t. Turn them over to someone who enjoys reading arcane language and ruining her eyesight (your attorney).

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