Lawyers play a critical role in negotiating and drafting contracts, but when business owners and investors enter into significant agreements regarding or on behalf of their private company, these documents are too important to leave them solely in the lawyer’s hands. The parties to these business agreements need to carefully read and understand their terms if they want to avoid unwelcome surprises when their agreements become the focus in a future legal dispute. There are a number of issues to consider in documenting business agreements, and the elements that go into developing binding business contracts is the subject of this blog post.
The Terms of the Written Agreement Control
The starting point in securing an enforceable agreement is to “get it in writing.” Virtually all business agreements are entered into after the parties have discussed the material terms of the contract, and in some cases, these negotiations may last for weeks or even months. One party to the contract may therefore conclude that assurances it received from the other party during these negotiations should be as binding as the actual terms of the agreement. Unfortunately, a party who seeks to enforce oral promises or assurances outside the contract faces a steep uphill climb under Texas law.
Standard contract terms will likely include both a “merger/integration clause” and “anti-reliance provisions.” These terms exclude from being part of the agreement any offers that were made during the parties’ discussions, as well as any representations the parties made that are not expressly set forth in the contract. Over the past two years, Texas Supreme Court has made clear that the actual terms of the contract control, and it has repeatedly rejected claims that are based on statements made outside the contract. In 2018, in Orca, the Supreme Court denied a fraud claim without requiring a trial on the basis that the reliance element of fraud can be “be negated as a matter of law when circumstances exist under which reliance cannot be justified.” Just last year, the Court overturned large jury verdicts in two separate fraud cases setting aside judgments based on alleged misrepresentations that were not set forth in the contracts at issue.
Continue Reading Did Your Business Deal Just Do a Disappearing Act? Securing Legally Binding, Enforceable Contract Terms