The Battle of Contracts: Exploring the 5 Most Litigated Contract Provisions
June 14, 2023 — Contracts form the backbone of modern business transactions, establishing legal obligations and expectations between parties. While contracts are meant to facilitate smooth business operations, they can also become battlegrounds for disputes and legal battles. In this blog post, we delve into the five most litigated contract provisions that have sparked heated debates and numerous lawsuits. Understanding these contentious provisions can help businesses navigate potential pitfalls and create stronger, more robust agreements.
1. Ambiguity and Vagueness
One of the primary causes of contract disputes is the presence of ambiguous or vague language. Ambiguity arises when contract provisions are open to multiple interpretations, leaving room for differing viewpoints. Vagueness occurs when key terms or obligations are not clearly defined, resulting in uncertainty and disagreement between parties. Courts are often called upon to resolve disputes arising from ambiguous or vague provisions by applying rules of contract interpretation, considering the intent of the parties and industry customs.
To mitigate the risk of litigation, it is crucial for contract drafters to ensure precise and unambiguous language. Clearly defining terms, including specific performance metrics, time frames, and consequences for non-compliance, can reduce the likelihood of disputes.
2. Force Majeure
Force majeure clauses are provisions that excuse or suspend performance obligations when unforeseen events beyond the parties’ control occur, such as natural disasters, wars, or government actions. The COVID-19 pandemic highlighted the significance of force majeure clauses, with numerous disputes arising from the interpretation and application of these provisions.
During the pandemic, businesses sought to rely on force majeure clauses to justify non-performance due to lockdowns, supply chain disruptions, or governmental restrictions. However, the scope and applicability of force majeure provisions vary depending on their specific language. Courts have closely scrutinized the wording of these clauses, emphasizing the need for clear and comprehensive force majeure provisions to address various contingencies.
3. Indemnification and Liability Limitations
Indemnification clauses allocate responsibility and potential liability between parties in the event of a breach or harm caused by one party. Such provisions outline the circumstances under which one party agrees to compensate the other for losses, damages, or legal expenses.
Litigation often arises when indemnification clauses are poorly drafted or fail to account for all potential risks. Disputes may focus on the extent of indemnification, the scope of covered losses, or the presence of exclusions. Similarly, limitations of liability provisions, which set a cap on the amount of damages a party can seek in the event of a breach, are frequently challenged in court. Ensuring that indemnification and liability limitation provisions are precisely worded and reflective of the parties’ intentions can help prevent costly litigation.
4. Non-Compete and Non-Disclosure
Non-compete and non-disclosure provisions are common in contracts involving business partnerships, employment agreements, or the sale of a business. Non-compete clauses restrict one party from engaging in similar activities or competing with the other party within a specified time period and geographical area. Non-disclosure provisions, on the other hand, protect confidential information from being disclosed to unauthorized parties.
Courts often scrutinize non-compete and non-disclosure provisions to ensure their reasonableness and protect parties’ legitimate interests. The enforceability of these provisions can vary depending on jurisdiction, the specific industry, and the scope of restrictions. Disputes frequently arise when parties interpret the provisions differently, leading to claims of breach or the seeking of injunctive relief to prevent violations.
If you need help preparing a contract – or need a contract reviewed, contact Gleam Law and we can have one of our attorneys help you.