Litigation can be time-consuming, expensive and risky — even with the best of cases — and should be undertaken only after a thorough review of the underlying facts and law, coupled with a careful cost/benefit analysis. 

Litigation should be recognized as a financial tool for your company. It should not be used as an emotional vent to get even, to teach a “lesson” or as a matter of principle. Therefore, your company should do all it can to avoid being placed in the position of having to sue someone (as the plaintiff in the case), or to be sued (as the defendant). Perhaps the most fertile source of business disputes and resulting litigation is contracts, which include terms and conditions contained in commercial forms (see my article, “Battle of the Forms: It’s No Game!” in The Wholesaler, March 2025 (https://bit.ly/4fXxYAR)). A contract is the legal foundation and basis of the parties’ business obligations and duties to each other. 

Below are some tips and suggestions on how to avoid contract disputes and ensuing litigation.

Tip No. 1. Read the damn contract! Sounds simple, right? But it never ceases to amaze me how many people don’t know the terms of a contract under which their company is bound and that is the subject of a dispute. That is entirely unacceptable and should never happen. Before signing a contract, or accepting a quotation, proposal, or purchase order, know what is in that document. It is better to spend your time and resources reviewing and negotiating a contract before proceeding with it, than after a dispute arises. Be assured, that if you don’t, litigation will take even more of your time and resources.

Tip No. 2. More importantly, understand the contract. Know and be mindful of your contractual rights and obligations. Does the contract include a disclaimer or limitation of warranties, or a limitation of damages, or impose unrealistic quotas or performance requirements? Don’t be embarrassed if you don’t understand every clause or provision in a proposed contract. 

Instead, if necessary, seek the input of one of your business colleagues or the advice of your attorney. The cost of reviewing and revising a contract is far less than what you will incur in litigation. Don’t let vanity be the cause of accepting a bad contract and later becoming involved in related litigation.

 Tip No. 3. Don’t make assumptions about something you don’t know. This tip is similar to Tip No. 2 but deals with something much more insidious. It is when you do not object to a bad provision in a contract because you wrongly assume that it is unenforceable and that a court will “save you” in the event of a dispute. This often happens with a noncompete clause in a contract. 

Many people wrongly believe that such clauses (and noncompete agreements, in general) are illegal and won’t be enforced. However, except in a handful of states, restrictive covenants are and will be enforced if they comport with certain legal requirements, such as being narrow in scope as to duration, geographic territory or specified accounts or markets, and are necessary to protect a party’s valid protectible business interest, such as preserving its confidential information. 

I am often contacted by sales representatives, as well as by dealers and distributors, who have either been terminated or are considering terminating a contract, and ask whether the noncompete clause in their contract is enforceable. 

Regrettably, too often I have to tell them that yes, in my assessment, the provision is enforceable and that they are bound by a restrictive covenant that will prevent them from engaging in a portion of their business or profession because they either failed to read and understand the contract, or worse, that they mistakenly assumed the provision was not enforceable. Remember, know what you don’t know and ask someone. Don’t assume or guess.

Tip No. 4. Be mindful of and comply with contract deadlines. In addition to delivery and payment terms, business contracts often contain other deadlines that can affect the parties’ rights, obligations and business relationships. For instance, some contracts contain deadlines for inspecting goods following delivery, reporting problems or revoking acceptance, or later for making warranty or other claims (such as requiring that lawsuits be commenced within a limited period). Still other contracts have a set term that will expire on a certain date if not renewed. 

Such deadlines are typically enforceable. Don’t find yourself in a situation where your legal rights, or the contract itself, have expired because you unknowingly failed to act when necessary. To avoid this possibility, maintain and actively review a spreadsheet of all active contracts that summarizes pertinent information, including deadlines. Someone in your company needs to be assigned the responsibility of actively reviewing and maintaining the spreadsheet, as well as monitoring deadlines.

 Tip No. 5. Make sure that all provisions agreed to are included in the written contract. Many contracts are the result of prior oral or written negotiations. It is critical that you ensure all agreed-upon terms are ultimately included in the written contract. 

Don’t rely on an unwritten side agreement, even if made by a buddy or someone with whom you have successfully worked before. Buddies can come and go, and even the best of buddies can suffer from what I call “contractual amnesia” and have no recollection or a different recollection of the side agreement when you later seek to enforce or rely upon it. 

Moreover, most well-drafted contracts include an integration clause stating that the signed written contract is the full understanding and agreement between the parties, to the exclusion of prior or contemporaneous oral or written agreements or representations. If a term is important to you, make sure it is included in the final written and signed contract. 

Tip No. 6. Always document changes/exceptions to existing contracts. As a matter of commercial practicality or necessity, it may be necessary to make changes to an existing contract (or purchase order, etc.). If such changes affect the underlying terms of the parties’ contract, they should be memorialized in a formal written amendment to be signed by the parties or in an amended purchase order. 

However, even if the changes are a minor deviation from the terms of the written contract and don’t require a formal written amendment, they should be documented to avoid future doubt, confusion and potential disputes. Such changes could relate to pricing, delivery and warranty issues, or about calling on, selling or shipping to accounts outside of your company’s assigned territory or market. Documenting such changes can be done by a simple exchange of confirmatory email messages. 

 Tip No. 7. Even if you don’t sign and return a contract or a contract amendment, it still may be enforceable. If, in the course of negotiating a contract or amendment, you receive a marked copy with some proposed changes you don’t agree with, and that you decide not to sign and return, you still can be bound by its terms under the doctrine of acceptance by performance. 

If the parties perform as if a contract or amendment is in force, they cannot later object to the enforceability of a provision in that contract. Don’t act like an ostrich and hide your head in the sand with the hope that danger — in the form of a bad contract provision — will go away. If there is a provision in a contract that you object to, you need to confront it and try to negotiate a resolution. Otherwise, you may be surprised to find that you have accepted it by your conduct. 

 Tip No. 8. Don’t accept all contracts. No one wants to give up potential business, but it is better to reject a bad contract than to be bound by one. Too often, people accept contracts that they know have problems because they hope for the best. That is wrong. If a proposed contract contains terms that you know are unreasonable, confusing or one-sided (and not your side), and the other party refuses to budge on negotiating better terms, it may be better to walk away. 

Don’t force the issue. Otherwise, when a dispute does arise — and it likely will — it may be too late to avoid the consequences of your misplaced optimism. You don’t want to be involved in trying to enforce or defend claims based on a contract that you knew was bad from the get-go. Remember, there are more fish in the sea; keep fishing for a better opportunity.

 Tip No. 9. Include terms in the contract to help avoid disputes. Even when you read, understand and negotiate contracts, and include all the agreed terms and document any changes, there is always the possibility that a dispute can arise — either because there is a valid difference of opinion, or sometimes due to dishonesty and greed. 

Regardless of the reason for a dispute, however, it is advisable to plan and include provisions in a contract that may help avoid litigation by giving the parties time to address the issue in dispute before one of them rushes to the courthouse, such as a notice and cure provision. 

Such a provision requires the aggrieved party to give written notice of the breach to the alleged defaulting party, clearly setting forth the alleged breach. The recipient will then have time (anywhere between 15–30 days or more) within which to try and cure the alleged breach, or, if more appropriate, time to seek an amicable resolution prior to the commencement of litigation. To further the process, some contracts also include mandatory mediation, or a period to negotiate of disputes, before either side can pursue litigation. 

An example of such a provision is:

“In the event that a dispute arises between the parties pertaining to any matters related to this Agreement, the following procedure shall apply and the parties shall use their best efforts to resolve the dispute in good faith as promptly as possible: (i) In the event of any such dispute, the matter shall be immediately referred to the parties’ respective Chief Financial Officer; (ii) In the event that those Chief Financial Officers cannot resolve such dispute within 30 days, the matter shall be submitted to the parties’ respective Chief Executive Officer; (iii) In the event that the respective Chief Executive Officers cannot resolve such dispute within 10 days, then either party may pursue any other remedy available under law or in equity.”

 Tip No. 10. Include terms in the contract that will level the playing field. Sometimes despite your best efforts, disputes will happen that may result in litigation. Since the cost of litigation in terms of attorneys’ fees and related expenses can be quite significant, you need to plan ahead, especially if the other party has deeper pockets. 

Unlike in much of the world, in the United States, each party is responsible for paying its own attorneys’ fees in litigation. The only exceptions are if such fees are awarded by statute, such as under various states’ sales representative protection statutes or under federal labor or business practice laws, or if there is a contractual right to recover attorneys’ fees. So, if you wish to level the playing field, try to include a provision under which the prevailing party can recover its reasonable attorneys’ fees and costs. 

An example of such a provision is:

“Attorneys’ Fees. In the event of any litigation between the Parties arising from or relating to this Agreement, the prevailing Party in such litigation shall be entitled to recover from the non-prevailing Party its reasonable attorneys’ fees and costs arising from or related to such litigation.”

Although I have been a trial attorney for more than 40 years, I still prefer for my clients to spend their time and resources on something positive and, if at all reasonably possible, to avoid litigation. 

Toward that goal, I try to instill in them the absolute need to read, understand, question, and negotiate their contracts, and to reject bad ones. While following the above tips won’t ensure that you will avoid every dispute, they certainly will give you and your business a better chance of doing so. Good luck!