Contracts are legally-binding agreements that can be implied through conduct, oral, and written. They are essential tools for doing business yet reverting to boilerplate language and even negotiated clauses can spark expensive and contentious disputes.
When it counts, having an experienced attorney write and/or review contracts is a prudent step. Business attorneys are familiar with the terms and clauses that trip people up most often, and will steer you clear of them.
What to Watch for When Agreeing to a Contract
The following contract clauses most often cause issues in Wisconsin. Read on to learn why they matter and what to watch for.
- Choice of Law and Forum Selection clauses. Starting with the small print, these clauses dictate how and where disputes over the contract will be settled. Forum selection is the venue for settling disputes. Choice of law can be set by adding a line that says, “This contract will be governed under and construed by the laws of the state of Wisconsin,” so any judge who hears the case will decide it using Wisconsin laws.
These are important because Wisconsin may treat issues like non-compete clauses and warranty disclaimers differently than other states. Using Wisconsin laws adds predictability to the outcome and cost of any dispute.
- Hold harmless and Indemnification clauses. Broad contract wording can create confusion about responsibility and liability. Indemnity clauses describe the liability each party assumes for errors or injuries and how defense costs, settlements, and judgements are handled.
Wisconsin judges will uphold indemnity clauses if the language is clear and one party is not trying to shift blame for their own error. Make sure your contracts are exacting in their language about claims covered, scope, duty to defend, caps, and carve-outs for intentional injuries. - Liquidated Damages vs. Penalties. If a contract is broken or a deadline missed, liquidated damages clauses set a dollar amount that the party at fault must pay. In Wisconsin, the amount must be a fair estimate of the actual damages, not a punitive sum.
Judges examine three aspects of the contract when deciding upon liquidated damages:
- What the parties intended in the contract
- How difficult it would be to calculate damages later
- Whether the amount stipulated was reasonable when the contract was signed.
To defend the clause, keep notes on how the figure was calculated, and consider making a multi-step process of assessing damages, such as how late the goods were delivered, or the dollar amount of a contract missed as a result.
Non-Compete and Restrictive Covenant Clauses. This is part of an employment contract and is required to be reasonable in scope, duration, and geography. It’s prudent to limit post-employment restrictions to what’s necessary to protect trade secrets to comply with Wisconsin law.
- Warranty Disclaimers and the Limitation of Liability. The Uniform Commercial Code (UCC) is a statutory guideline for business transactions that applies especially to companies that do business in multiple states. When a business tries to write a contract that doesn’t comply with the UCC it can be thrown out. These clauses cannot be vague, hard to find, or in conflict with other statements or claims.
- Merger clauses, Ambiguity, and Boilerplate pitfalls. Clear contract language results in fewer costly disagreements. A merger clause is a statement that the contract is the final and complete agreement, so that no additional outside information can be introduced in an attempt to change the contract (but a court may strike down a merger clause that’s ambiguous). Boilerplate language is risky. Your contracts should always describe clearly the pricing, delivery, payment, performance, and risks involved.
- Payment, Remedies, Notice, and Termination. The important aspects of contracts should be crystal clear in their placement and their wording, including: payment triggers, late fees, interest, remedy ladders, and termination procedures. The clause should clearly state when payments are due, the threshold for noncompliance, and steps for terminating a contract.
Contract for Success with a Business Attorney
An experienced business attorney who can identify issues with contracts is a valuable asset. The professionals at Kerkman and Dunn can write or review contracts with an eye to eliminating vague language or ironing out troublesome clauses that can cause expensive disputes. Call for a consultation today.
