Up in Arms

Prepare for litigation with these weapons of mass discussion.
Magazine Contributor
3 min read

This story appears in the January 2005 issue of Entrepreneur. Subscribe »

Planning for possible litigation is one of the most uncomfortable issues in business negotiation. Many contract clauses are designed to give one side superior firepower in court. Here's the standard arsenal:

  • Service of process: This is a fancy term for the formal notice you owe the other side before you haul it into court. The rules are technical and bear directly on a court's legal authority to decide a case. So if your adversary is the type to hide when the process server comes a-knockin', you may have a problem. A service of process clause designates a "who" and "how" for service, and gets your lawsuit off on the right foot.
  • Choice of law forum: When one side is from Maine, and the other is from Arizona, and they're building in Iowa with materials from Alaska, where do you sue? Choice of forum clauses set out which court the parties will use, and a choice of law clause specifies which state's laws will apply. When used effectively, these clauses start you off with the court and body of law most favorable to you.
  • Attorney's fees clause: This clause makes the loser of a lawsuit responsible for the winner's legal fees as well as his or her own. In some cases, attorney's fees are awarded by statute. Of course, if you're the one more likely to get sued and to lose, don't add this clause to your contract.
  • A waiver: This refers to the release of a right or privilege. It's a great way to stack the deck. Your fantasy contract will cement every right you may, should, could or would have, while having your opponent waive every legal defense. A lot is possible, but know that a court won't honor every waiver you bludgeon the other side into signing, such as waivers of constitutional rights. See your attorney for details.
  • Equitable remedies: Our law still sustains the traditional English distinction between actions at law and in equity. The former are lawsuits for damages; the latter ask the court to do something fairer when money just isn't enough. An injunction, a court ordering someone not to do something, is one kind of equitable relief. Others include the rescission or reformation of a contract, or even specific performance-a court's forcing a party to go through with the deal. With this in mind, clever deal-makers try to control equitable remedies by getting their opponents to either waive or agree to specific ones from the get-go. Sometimes, it's permissible. At other times, it's presumptuous, but you've got nothing to lose by trying.
  • Representation: Finally, a clause in which one side acknowledges that they were represented by an attorney or knowingly waived that right can help establish that party's mental capacity and equal bargaining power. This will preclude their arguement that you took advantage of them.

A speaker and attorney in Los Angeles, is author of Deal Power.

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