Contract Review ' An Opportunity To Avoid Those Gotcha Moments

• Published date: 15 September 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: Foley & Lardner
• Author: Ms Sharon M. Beausoleil

Why is a Periodic Contract Review Important?

Business relationships evolve. Has your company...

• Expanded its business relationship with a counterparty but continued to use the same negotiated contract from that first initial project?
• Completed a sale transaction, taking on contracts that were already in place with the acquired target company?
• Undergone a restructuring of the corporate organization, adding or combining affiliates?

All of the above situations present an opportunity to analyze your current contract terms, updating the contract parties and notice provisions as well as ensuring that the master set of terms matches the risk profiles for the services or goods being acquired.

Courts generally will enforce contract terms as written. As the Texas Supreme Court recently pointed out, "we do not protect parties 'from the consequences of their own oversights and failures in nonobservance of obligations assumed.'' James Construction Group, LLC v. Westlake Chemical Corporation, ---S.W.3d--- 65 Tex. Sup. Ct. J. 1096 (Tex. 2022) (citing Dorroh-Kelley Mercantile Co. v. Orient Ins. Co., 135 S.W. 1165, 1167 (Tex. 1911). Texas courts will "regularly enforce unambiguous contract language agreed to by sophisticated parties in arms-length transactions." Id. (citing Chalker Energy Partners III, LLC v. Le Norman Operating LLC, 595 S.W.3d. 668, 672-673 (Tex. 2020).

Taking the time to review certain legal provisions and identifying areas for improvement (or even update outdated contact information) may lessen the possibility of missed opportunities and deadlines and other "gotchas" if a dispute arises in the future.

Contract provisions that may warrant further review are:

1. Who are the Contract Parties to the Contract? Often times, parties may contract at the parent entity level only. While this may work for a master agreement,¹ further review may be warranted if the contract does not include affiliate language or has placed obligations on a parent entity that is not the counterparty for most of your operational contracts.

2. Where are your Contract Notices Going? Have you looked at your notice provisions lately? In addition to today's increasing use of email and text messaging, often notice provisions still include fax numbers as a notice option. In addition, notice provisions likely list named individuals and their email addresses for notices. As the past few years has reminded us, personnel do change jobs, even if such individual stays with the company. If...