Most of us have heard of the 4 Ps of marketing: product, price, placement, and promotion. What about the 4 Cs of good contracts? A solid contract generally meets the 4 Cs of clarity, certainty, consensus, and completeness. Contract negotiation is the craft of coming to a consensus on terms and reflecting those as clearly as possible. The gap between that ideal and most commercial contracts is where litigation lives.
So how do many businesses get tripped up with unclear contracts? While non-performance (e.g., non-payment) makes up a big part of contract litigation, it is by no means all of it. Many disputes arise from contracts that don’t adequately reflect the parties’ intentions or leave too much uncertainty.
This post breaks down a few reasons that commercial contracts fail—and some ways to avoid these outcomes.
- Text Over Intent. Courts generally privilege the plain language of a document. Contract negotiation often privileges the exact opposite—give and take that results in ambiguous compromise language. Many negotiated agreements are filled with wishy-washy phrases like “reasonable endeavours,” “commercially reasonable efforts,” and “without undue delay.” This creates a structural mismatch of courts looking at the plain language and contract parties trying to argue for what they meant by a term.
- Course of Dealing. Courts look for certainty in contract language. Contracting parties, by contrast, often rely on conduct. Take cooperation launched before contract signing, something that happens rather frequently (despite lawyers’ protests!). From a court’s perspective, this often means no enforceable contract at the time. The parties, by contrast, may see the contract as a mere formality to instantiate an already-existing relationship.
- Handshake Terms. Many commercial relationships involve oral or informal agreements that never make it into the written contract. Parties assume that “everyone knows” what was agreed. Courts generally don’t—and the parol evidence rule in many jurisdictions limits how much pre-contractual discussion can be used to interpret written terms. This frequently comes up with liquidated damages (LDs). The party entitled to LDs will often give vague assurances that they “prioritize the relationship” and “hardly ever apply” them, hoping the other party will acquiesce. These assurances can’t override the contract’s plain language.
- The Precision Problem. Business people often prefer loose language because it preserves flexibility. There is often a perfectly reasonable case for this—technology and market conditions change quickly. Lawyers sometimes accommodate this to close deals. The result is contracts full of terms like “promptly,” “satisfactory quality,” and “material change,” all of which sound clear but can be disputed later at considerable cost.
- “We’ll Figure It Out Later.” Some contracts deliberately leave gaps because the parties couldn’t agree. Courts filling those gaps may produce results neither party intended. For example, if a contract does not specify a delivery timeline for products, courts may use the Uniform Commercial Code (UCC)—which governs commercial transactions in most U.S. states—or prior case law to fill the timeline. These timelines may vary from industry standards or the parties’ subjective expectations.
Closing Thoughts
Businesses value flexibility and there is often a reasonable case for it. Technology moves fast and markets shift. This desire for optionality, however, can have serious consequences when there is a dispute. Textual ambiguity, silence on key terms, and non-textual promises are grounds for misunderstanding and dispute. While one shouldn’t let the perfect be the enemy of the good, sloppy drafting is no good at all.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Reading or interacting with this content does not create an attorney–client relationship. You should consult a qualified attorney for advice regarding your specific situation. Mehaffy, PLLC disclaims all liability for actions taken or not taken based on this blog.