Contract Touchstones

I am exercising a bit of editorial discretion to share this article I was invited to write by the National Golf Course Owners Association:

Anticipating Conflict: How Golf Course Owners Should Contractually Prepare

My legal career has included a variety of roles. I represented clients in litigating commercial disputes for more than two decades. I have served as “in-house” counsel to financial entities for fifteen years. And, since 1990, I have had the opportunity to regularly serve as an arbitrator and mediator of business and employment disputes.

Each of the hats I have worn has provided me with exposure to the legal agreements that form the backbone of commercial relationships. Based on my experience, I am confident that the most important provisions contained in a contractual agreement are those that dictate what will occur in the event that a dispute arises between the parties.

Face it, once a contract is signed, it is filed away and likely not to be looked at again as long as the relationship is proceeding smoothly. However, when conflict occurs, a business owner or executive—or their attorney—will root out the contract from a file drawer or a network drive in search of guidance as to what happens next.

Typically, an agreement will address such dispute-related topics as:

  • The circumstances in which a contracting party is deemed to be in breach of its obligations. Contracts sometimes provide detailed performance requirements along with a warranty that they will be met. If a party falls short, it may face liability for the deficiencies. Other times, a contract will specify that actionable liability will exist only in the event of a “material“ or “willful” breach of a party’s obligations.
  • The damage exposure that a party will have in the event of a contract breach. A commercial contract may include provisions that limit the amount or type of damages that a party will be obligated to pay in the event a breach occurs. Sometimes, the contract will provide for the damage exposure to be commensurate to the revenues to be paid under the contract. Contracts also may exclude categories of damage claims—for example, a claim that, by virtue of a breach, the aggrieved party suffered lost customers and profits. Other times, a contract will provide for “liquidated damages” (i.e. a defined amount of recovery even in the absence of proof of damage) or for the recovery of attorneys’ fees in the event a party prevails in its pursuit of a claim for contract breach.
  • The law that will be applied to interpreting the contract language. Parties often will specify that their contract will be interpreted in accordance with a particular state’s law. Usually, this will be the state which is home to one or both of the parties, but sometimes the parties will choose the law of a third party state (for example, Delaware) which has a fully developed and recognized statutory scheme and body of law that is viewed as authoritative. Because the laws of states can vary in some circumstances, the designation of law can have meaningful consequences. For example, certain states have enacted statutes to address unfair and/or deceptive trade practices that conceivably could apply. Others have adopted laws that provide for the recovery of interest and or fees under certain circumstances.
  • In what forum will a dispute be litigated. When an agreement is silent on the subject, a dispute is subject to litigation in the courts. The rules of the court will provide the scope and sequence of events, including document discovery and depositions, motions to dismiss and for summary judgment, and trial and appellate procedures.

Parties may prefer to avoid a judicial process, which can be expensive, uncertain, toxic and public. They would prefer to address disputes in a different forum. When a conflict arises, the parties can always agree to pursue a non-judicial resolution; however, the relationship may be sufficiently emotional or poisoned at that juncture that reaching an agreement to forestall litigation is challenging.

Parties anticipating the possibility of a dispute at the time of contracting may elect to include in their agreement provisions mandating a non-litigation forum, specifically arbitration or mediation. In arbitration, the parties submit their dispute for resolution to a privately selected arbitrator instead of a publicly appointed or elected judge. Because arbitration is a “creature of contract,” the parties can agree to an arbitrator who has expertise regarding the dispute at issue, and can tailor a process to more directly and expeditiously reach the heart of a business dispute. An additional benefit of arbitration is that it is a private forum, meaning that the parties can avoid unwanted publicity that can accompany the pursuit of a case in the courts.

Mediation is a process involving the attempted negotiation of a resolution with the help of a third party mediator.  Studies and anecdotal evidence consistently confirm that mediation is a powerful and effective tool for the resolution of business disputes, and can serve to preserve a business relationship.

These general contract principles carry equal force in the context of agreements executed by golf course owners. An awareness of how contract drafting can be beneficial in the event that a dispute subsequently arises can provide advantages if a contractual relationship does not play out as hoped.

Based on whether the agreement is with investors, vendors, senior-level employees, lenders or others, the specific terms most beneficial to the golf course owner will be circumstantially specific, and should be explored with counsel. It is important for a golf course owner to be proactive and mindful of these issues.

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