Whenever you prepare to enter into a commercial contract, you almost certainly have a range of outcomes that you’d define as “likely” regarding how the arrangement will work out. A good commercial contract will have “failsafes” that protect your position, not only when the project achieves an expected outcome, but also when the project is far more successful – or a much bigger failure — than you would have ever imagined. This way, a truly complete commercial contract can protect your interests whatever the final outcome. For these reasons and more, be sure to seek representation from an experienced South Florida commercial contract attorney when it comes time to draft your next deal.
A recent case decided by the federal 11th Circuit Court of Appeals (whose ruling directly impact Florida, Georgia and Alabama,) offers an example of how things can go wrong and how you can be harmed if you have the wrong contract.
The parties to the contract were an insurance brokerage firm and a company that provided consulting services related to helping life insurance companies set up plans. The contract called for the consulting firm to provide services to the brokerage firm, including substantial pre-rollout services. The agreement included various provisions related to compensation, including one that said that, notwithstanding a deferral provision, “no payment shall be made” to the consulting firm “in excess of 20% of any commission payment.”
What the contract did not have, however, was any base term or rate of compensation to which the consultant was entitled regardless of the number of sales the insurance brokerage made. The lack of these provisions proved to be a major problem for the consultant, as the plan was an abject failure. The brokerage sold all of three policies, earning a grand total of $262.80 in commissions before the insurer, Prudential, pulled the plug on the plan due a lack of sales.
The consultant sued for breach of contract, arguing that the brokerage owed it more than $113,000 for unpaid services completed in the pre-rollout phase. The brokerage argued that it had not breached the contract, that it owed the consultant only a mere $52.56 and that it had already paid that sum.
The 20% was a limitation that limited the consultant to payment of just $52
That argument by the brokerage was the correct interpretation of the contract and won the day, both in the district court and the appeals court. The “no more than 20% of any commission” term reflected a limitation, not a condition related to timing, according to both courts. The “20%” provision was an “independent covenant” that limited the performance due. In this case, that limitation limited the consultant’s compensation to 20% of the total commissions, or $52.56.
A differently worded contract might have yielded a much different obligation on the part of the brokerage, and a much different outcome had the parties ended up in court, as different language likely could have triggered a much larger sum being owed to the consultant. However, as the contract was drafted, the consultant’s compensation was tied solely to the success – or, in this case, failure – of the plan itself. When the plan tanked, so did the consultant’s right to compensation beyond just a few dollars.
As this case clearly shows, there are so many “ingredients” that go into a truly complete commercial contract, including contingency planning for the possibility that an unlikely outcome might come to fruition. To make sure you have the carefully and thoroughly drafted commercial contract you need, count on the knowledgeable contract attorneys at Stok Kon + Braverman to protect your interests. Contact us online or by calling (954) 237-1777 to schedule your consultation.