Many people, when negotiating a commercial contract, may tend to focus on the larger items within the agreement. In any commercial agreement, though, it is important to make sure that both the large and the small provisions have received careful scrutiny. An experienced Georgia business attorney can help you ensure that any contract you sign has all of the clauses you require and none of the provisions that would harm your position. Even the most seemingly rote of clauses can be profoundly important, as seen in one federal case from this year in which the outcome turned upon the parties’ inclusion of a “choice of law” provision that required relying upon Kansas law to resolve disputes.
The parties to the agreement that eventually fueled the litigation were a Connecticut LLC and a Kansas-based airplane manufacturer. The parties’ contract called for the manufacturer to sell an aircraft to the Connecticut LLC. Among the contract’s terms was a provision that a wholly owned subsidiary of the manufacturer would manage the jet for the buyer for a period of five years. Another of the terms stated that all contract disputes should be resolved by using the laws of the state of Kansas. When the parties negotiated the deal, the seller indicated that, at the end of the five years, the plane would still be worth 90% of the buyer’s purchase price.
Eventually, the manufacturer decided to sell off the aircraft management business to an outside entity. This took place three years into the five-year term spelled out in the buyer’s contract. The buyer sold the plane, recouping less than 75% of the purchase price. The buyer, displeased with the outcome, sued in federal court in Florida. The buyer contended that the seller had used fraud to induce it to make the jet purchase and had breached the agreement.
The seller succeeded in persuading the trial court to dismiss the buyer’s case. The basis for that dismissal was the fact that, under Florida law, the sort of promises regarding future income and earnings that this seller made cannot form the basis for a valid fraudulent inducement case.
On appeal, however, the buyer was the successful party. The key to the buyer’s success was a provision that is probably overlooked by some parties when negotiating commercial contracts: the choice-of-law provision. The parties to this contract had expressly mutually agreed that Kansas law should resolve their disputes, rather than Florida law. This changed the outcome dramatically because Kansas, unlike Florida, does recognize as valid fraudulent inducement claims based upon allegedly false promises regarding future earnings and income.
Even though the facts of this case involved two contractual partners from Connecticut and Kansas and a choice of law between Kansas and Florida, the 11th Circuit’s decision is binding on federal courts in Georgia and points out very important information for anyone negotiating a commercial contract in this state. That lesson is that all provisions to a contract matter, and all are important, with any clause potentially making the difference between a clear success and a clear defeat. The difference between having a case and having no case for the buyer in this aircraft purchase case was the difference between having a choice-of-law provision and not having one (or having a different one).
When you are planning to enter into a new commercial contract, it is important to have skilled attorneys working on your side. The diligent Atlanta contract litigation attorneys at Poole Huffman, LLC have been helping our clients for many years negotiate and execute deals that meet their needs and protect their interests. Contact our attorneys online or by calling (404) 373-4008 to schedule your confidential consultation.
More blog posts:
Securing Your Credit Union Pt. II: Keeping Internal Fraud Out, Atlanta Business Litigation Attorneys Blog, Nov. 16, 2015
Securing Your Credit Union Pt. I: Making Cybersecurity A Top Priority, Atlanta Business Litigation Attorneys Blog, Nov. 11, 2015