Businesses routinely enter into contractual agreements with suppliers, distributors, and customers. The majority of transactions within the business world are controlled by contractual agreements, which create private law. When a contract is drafted, it is important to ensure terms of the agreement are negotiated to protect your interests. Possible contingencies should be addressed and the contract should include causes protecting your rights. An understanding of business law and how it applies to interpretation of a contract's performance requirements is essential when a contract is being created.
Knowing the law and ensuring you understand your obligations when entering a contractual agreement is essential, because if either party to the agreement fails to abide by any of its terms, a breach of contract lawsuit may be filed.
Protecting Your Interests When Drafting Contracts
A possible lawsuit for breach of contract has recently been widely publicized. The Wall Street Journal reports businessman Donald Trump has filed a $500 million lawsuit against Univision television station. The lawsuit reportedly alleges Univision breached a contract to air the Miss Universe pageant.
In January, Trump and Univision drafted a contractual agreement in which Univision would pay $15 million for the right to air the beauty pageant. The pageant was scheduled to go on the air on July 12. However, Univision announced it would no longer air the pageant and was pulling out of the station's contract with Trump because of controversial comments Trump made about immigrants from Mexico. Trump responded by filing a lawsuit against the company.
Because Univision agreed to air and pay for the pageant, the station could potentially be found liable for breach of contract if it does not follow through on its agreement to show the pageant and pay Trump's company for it. If the station is liable for a breach, the station would either need to pay actual damages caused by failure to live up to the agreement or, if there is a liquidated damages clause in the contract, would need to pay the specified amount of damages to Trump.
To avoid being found responsible for a breach of contract, Univision must have a defense to breach. The station cannot simply decide after signing a contract that it does not wish to honor the agreement because it dislikes the party it entered into an agreement with. One party cannot unilaterally terminate a contractual agreement without legal justification.
The key question in whether Univision will be responsible for a breach is whether there was a morality clause or similar provision allowing the company to refuse to complete its obligations based on inappropriate statements or actions taken by Trump. Morality clauses are common in sponsorship contracts so companies can end relationships with spokespeople who become controversial.
Deadline reported Trump is claiming there is no termination rights within the contract with Univision. If this is the case, Univision could be in a tough spot because its audience would likely be upset if the business relationship with Trump is continued, but the company would still be obliged to pay Trump for damages for breaching its controversial obligation to pay for and air the pageant.
To ensure every contract your business creates contains clauses protecting your future interests so your organization does not find itself in a difficult situation like Univision's, it is important to get legal advice during the contracting process.