Business people create contracts frequently and sometimes unwittingly through a conversation, an e-mail, some communication in which promises are made to pay something or to do something. Many of those contracts are minor but some can involve major issues that do not necessarily occur to the contracting parties. Consequently, businesspersons should keep some issues in mind when dealing with others, sometimes overlapping with standard “Contracts Law” and other times unique to “Business Law.”
First, realize that you are trying to accomplish at least 3 objectives in making a business contract: legal effectiveness, in achieving the contract’s purposes; protection of your business’ interests, so you will likelier win in any possible dispute; avoidance of future conflicts, by making the contract as comprehensive and explicit as possible.
Secondly, write it down. While oral contracts can be binding they can be a lot tougher to prove in court. Consequently, even oral contracts should be evidenced by memoranda, exchanged e-mails, or some other writing that spells out your agreement.
Third, know your parties and include them. Is the person with whom you are dealing representing himself/herself and/or a partnership and/or a corporation and/or a subsidiary and/or some other business entity? Does he/she have the authority to bind them in a contract with you/your business? Should additional parties be bound so you can achieve your 3 objectives (see above)? You should ensure that all persons/organizations needing to be bound are bound by the contract, which may require some investigation on your part.
Fourth, strive for comprehensiveness, precision and clarity. The contract should be precisely worded, should contain all the essential elements of your contract, should spell out every agreement and should provide for possible legal conflicts. Do not rely on representations or promises that are not specifically included in the written contract: “that way lays madness.” The contract should be so clear and thorough that a stranger could read the contract and understand it as you understand it. That “stranger” may eventually be a judge who must understand the contract and enforce or strike its provisions. You should strive for precision and clarity even if you are presented with a “standard form contract”: remember that you can still negotiate and tailor the contract to your needs.
Fifth, contract only for lawful purposes. This bit of advice seems too obvious but is overlooked too often. Unlawful contracts or unlawful portions of them are void/voidable/unenforceable and “unlawfulness” is not merely criminal. Unlawfulness can include such things as: inducement to breach another contract; agreement to violate a civil law; a promise to indemnify the other party if he gets caught in the unlawful activity. If even one provision of the contract is for an unlawful purpose, that provision or the entire contract can be rendered worthless by a judge.
Sixth, once more with feeling. Even though the contract seems thorough and precise, spend more time thinking about, avoiding and resolving problems before signing the contract. What if delivered goods/services are not the agreed goods/services? What if they are not delivered on time? What if somebody else’s acts/omissions affect your 3 objectives? Play out different scenarios in your mind: what if…? what if…? what if…? Then as painstakingly as possible, tailor the contract to avoid/resolve any problems that could be created by those possibilities.
Seventh, consult/retain a lawyer specializing in Business Law/Contracts. If you have been in business “long enough,” you know that the slightest misstep can eventually cost you time, business, considerable legal trouble and mucho dinero. Lawyers with education/experience in Business Law/Contracts have encountered and dealt with scenarios that may have never occurred to you. Consequently, at least a consultation with a lawyer specializing in Business Law/Contracts is well worth the time and money.
DO’S AND DON’TS
DON’T be intimidated by the process or the people.
DO realize that your contract has at least 3 objectives:
a. legal effectiveness, in achieving the contract’s purposes;
b. protection of your business’ interests, so you will likelier win in any possible dispute;
c. avoidance of future conflicts, by making the contract as comprehensive and explicit as possible.
DO have written support for your agreements.
DO know all your parties and include them in the contract.
DO strive for comprehensiveness, precision and clarity.
DO contract only for lawful purposes.
DO review the thoroughness of the proposed contract, reviewing every “what if” that may occur to you and avoiding/resolving problems they could create.
DO consult/retain a lawyer specializing in Business Law/Contracts.
[Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information cannot be guaranteed. Readers act on this information solely at their own risk. Neither HandelontheLaw.com, or any of its affiliates, shall have any liability stemming from this article.]