Contract Terms – Analyzing the Technical vs. Practical Impact

All too often we run into situations when we see contracts that specifically and expressly provide for one thing, while our experience tells us that we should do quite the opposite.

For instance, and this is just one issue used for illustration purposes, many contracts have language that provides for a waiver of a notice of default. Taken literally, that provision means we need not notify a party who is in breach of contract that they are in breach. That waiver of notice means that notice is not required as a legal “condition precedent”; that position is technically and legally correct. However, is not communicating about a default the best practice? It is not. Such a waiver provision only exists so as to not trip up a party, or to avoid a claim or defense that notice was somehow deficient. However, notice is a very good, practical device we should use as an opportunity to invite communication.

Communication is key to productivity, results, and managing risk of loss. In fact, most disputes that escalate into that which no one could anticipate usually do so because of a miscommunication or a lack of communication; much like a truly awful, real-life game of “Operator”. How many times have we witnessed or been part of a situation when something was miscommunicated, not communicated, or taken out of context so as to completely change a speaker’s meaning, resulting in making a bad situation worse?

Good communication is critically important in both heading off and resolving disputes. That is just as true when dealing with friends as it is when dealing with business partners – why? Because we are all very human. Letting your business partner, vendor, customer or client know that you think there is the making of a problem or issue before it rises to the level of and reaches a point where each side feels the need to “lawyer up” is in everyone’s best interest.

Communicating in person or by phone is important, particularly in the face of a valuable relationship. A close second in the business world is following up that exchange with a letter or email that memorializes what was discussed and what the parties each agreed to do next in an effort to move forward and resolve the issues that arose. Inviting communication usually allows one to learn or confirm things that were previously only speculative. It will also promote mutual understanding and give each party the other’s perspective. In addition, the cost of communicating relative to contractual issues between the parties is negligible compared to the costs involved in trying to enforce legal rights or to extricate one from formal dispute resolution proceedings.

When we are approached with the question of whether we need to or must give a party notice of default, in typical lawyer fashion, we give two answers by saying that on one hand the contract does not technically require it, but on the other hand, one should take the opportunity to provide notice, if for no other reason than to realize the advantages that come with that communication and to better manage your relationship, and to understand risk of loss relative to a business partner, customer, vendor or client.

As a practice tip, please keep in mind that as with any action one may take, there can be unintended consequences. So, when in doubt about reaching out to communicate with a breaching party (be it a vendor, customer or business partner) one should discuss the substantive content of the message with their attorney or other trusted advisors.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

Kurt M CarlsonKurt M. Carlson | Creditors’ Rights, Insolvency & Bankruptcy Litigation & Resolution

Kurt’s practice concentrates on representing creditors, assignees and businesses of all sizes in a variety of ways, including complex business litigation, workouts, insolvency proceedings, bankruptcy reorganization cases and complex settlement negotiations. Kurt has extensive experience in a broad range of quasi-business and legal issues companies must address. If you need assistance with a related matter, contact Kurt.