Contracts. Boring and complicated right? Many times, yes. But, if you consider that a contract is a preemptive solution to avoiding problems between two parties ultimately hoping together to succeed in accomplishing a mutual goal, then they can be pretty interesting and straight-forward. Always keep in mind that a contract is simply the statement of what the mutual promises are between you and another. The rest is easy if you remember these ten rules.
Are you contracting with one person, a company, several people, several companies? The document needs to identify the parties involved in the agreement. It is also important to note the formal entity (individual, LLC, corporation, etc.) when relevant, and the address or state of formation at the start of the document.
This is the substance of the agreement. What is each party committing to do? You know what you promised to do. Make sure that the contract states what the other parties to the agreement have promised to do as well.
If a specific location is relevant to the issue discussed, then include it. This becomes most important if and when a dispute arises as resolution may need to take place in a court of an agreed upon jurisdiction. It is generally preferable to handle dispute in a home state or country when possible to avoid travel and other associated expenses.
Is there a timeline or deadlines? Eliminate misunderstandings. Don’t just assume all are in agreement or that there is an “industry standard.”
Most of the time the “whys” aren’t binding and get included at the front of the agreement under several “whereas” statements. Many attorneys will use these to introduce the relationship and reason for the parties to enter into the agreement. For example, “Whereas X is a highly respected expert in Y industry…” sets the stage for X to feel good about going into the details of the agreement.
5. How Much?
Again, be specific. How much does each widget cost? How many widgets do you need to produce? Use flat rates or formulas. If there is a formula involved, give an example of how something potentially confusing can be handled simply by applying the formula. If you can’t figure it out now, you won’t be able to agree on it later.
4. How Often are Payments Made?
While most will never forget to include the exact amount of money due to each party, it is important to state how often the payments are made.
3. What if?
What if the parties decide to terminate the relationship? How does each get out and in any case ensure that both parties get what is promised and help avoid bad blood If we kill the deal, how much notice do we have to give? If someone has misled the other or breached contract and it ends up in court, who pays damages and costs (called an “indemnification” clause)? What if there is a pandemic?
While verbal agreements are legally binding in most situations, the challenge is proving the terms of that spoken agreement. That is why a written agreement is imperative; it provides proof, or at least guidance and evidence of intent. The content does not need to be in a fancy font, on white paper, notarized, etc. Even legal jargon and special language are unnecessary so long as clearly understood terms are communicated, agreed upon, and signed by all parties in a written medium. A formal, but unsigned document is NOT going to help much—in fact, an unsigned document might arguably prove that the other side did NOT agree to the terms in a dispute. As such, if terms are emailed, make sure you ask for and receive a response from the other party stating they understand, agree to, and/or accept the terms.
1. Read the Agreement.
If you are signing an agreement that was sent to you by another party, read it. Do not rely on what you discussed and orally agreed upon. Be absolutely sure that the written agreement illustrates and documents the agreement as you understand it. If something is inaccurate, unclear, or missing, don’t sign it until it is corrected.
Contracts don’t have to be complex or difficult. They don’t even have to anticipate every detail. They just have to document the agreement and establish mutual intent so that all parties understand what’s on the other party’s mind. If you have further questions about creating agreements to protect your business or brand, we invite you to contact our law firm at 888-666-0062 to schedule a consultation.
DISCLAIMER: The information contained in this article is for informational purposes only and is not legal advice or a substitute for obtaining legal advice from an attorney.