Before Signing a Contract Blog

Contractual Considerations

Sustainable Law Group, PC’s attorneys regularly counsel clients through the process of drafting and negotiating their contracts with clients, customers, employees, distributors and manufacturers.  In that counsel we commonly discuss the same terms with our clients.  Ultimately, a contract is the written expression of a relationship.  If your agreements do not clearly reflect what you want from the relationship, it will not be of any help when you do come up against conflicts or confusion.  These 5 things to look for are a great starting point in making sure that the agreement does reflect both party’s understanding of the relationship.

Top 5 Things to Look Through Before Signing a Contract

A contract is a legally binding agreement, so before you sign on the dotted line, you’d be well-advised to go through it with a fine tooth comb to make sure everything is as it should be.

Before you bind yourself to the terms of the agreement, do yourself a favor and look through the following 5 components first.

Names of the Parties

While it may seem too obvious to even mention, ensuring that the names of the parties privy to the contract need to be correctly spelled and identified. It’s amazing how many people get this wrong, and neglect its importance. The correct legal names of the parties to the contract need to be stipulated so that there’s no question as to who is responsible for carrying out the obligations of the agreement. These will also be the people who will be liable should something go wrong.

This can get tricky when an individual is signing on behalf of a business. For instance, if a company is organized as a corporation or LLC, it should be identified by its correct legal name – including the Inc. or LLC suffix. If a person is signing on behalf of a company, the name of that legal entity should be the party to the contract. The party named on the contract is the one who will be legally bound to the terms of the contract.

A common error is to use the name of an individual representing an entity, instead of the name of the entity itself. For example, if your company is an LLC and is entering into a contract to buy equipment, the contract should identify the LLC as the buyer, not the individual.

Goods and/or Services

Defining the actual goods or services to be provided is at the heart of every contract. Every contract should specify what each party will do, when they will do it, and what they will receive in exchange

Leave ambiguity off the table, as it only invites conflict. Make sure that all relevant terms are clearly defined, leaving no room for different interpretations or misunderstandings.

The contract should also clearly specify how and when payments are to be made, and who will be making such payments. Since money is such a touchy issue, this part of the contract should be very detailed. If payments are to be made in installments, or only when work is completed to one party’s satisfaction, this should be stipulated, as well as the associated dates, times, and requirements. The method of payment should also be included in the contract.

Termination Clause

Before signing a contract, make sure it clearly stipulates when or how the contract will terminate. The termination provisions can vary widely – where some contracts cannot be terminated except for a material breach, others can be terminated at will by either party simply by giving written notice.

As a general rule. the termination clause shouldn’t be too restrictive or one-sided that it makes it nearly impossible to get out of the agreement. It should also allow the opportunity for the parties to remedy any perceived breach before ending the contract.

Conflict Resolution

In a perfect world, every contract would be carried out without a hiccup. Unfortunately, conflicts are common, which is why the contract should have a clause outlining how conflicts should be resolved should an issue arise.

The contract should specify in detail what the parties can do if something goes wrong. Typically, there are four options to choose from: negotiation, mediation, arbitration, and litigation. Some contracts provide for just one remedy – others provide for a progressive approach where one level of conflict resolution is employed at a time.

Negotiation and mediation are usually the best options for conflict resolution, because they allow the parties to resolve conflict in a more respectable, amicable and creative way. The resolution doesn’t have to be limited to monetary damages and can include a combination of changes in how the parties work together and a reworking of the original agreement. Negotiation and mediation give the parties a lot more control when it comes to how the situation is resolved, rather than leaving it the hands of an arbitrator or judge.

Regardless of how any dispute is to be handled, the majority of California-based contracts should include a clause that allows the prevailing party to recover lawyer fees because if that is not stated in writing, the prevailing party cannot recover their attorney’s fees unless a statute allows for recovery. In any dispute – whether its mediation or litigation – the most expensive aspect is the attorney’s fees.

Ownership

Some agreements involve intellectual property – which typically means that the parties will be agreeing to some form of assignment or license.  The ownership clause in a license agreement will state that all rights that the licensing party will retain. In cases where the contract involves using or transferring patents, copyright, trademarks, trade secrets, or confidential information, the contract should identify which party owns the intellectual property.

In addition, if the property is going to be licensed or used by the other party named in the contract, it’s important that the limitations to their use are also clearly spelled out. Such limitations may include the types of uses, length of time, transferability, and territory.

You may have heard the expression, “Prepare and prevent, rather than repair and repent.” This saying rings true in the legal world. It’s a lot easier and cheaper to ensure you’ve covered all your bases before signing a contract, rather than to pay for remedies that wouldn’t have been needed if you had done your due diligence in the first place.

If you have an agreement that you are currently in the process of negotiating, we definitely recommend that you seek legal counsel.  We, at the Sustainable Law Group, PC would be happy to answer your contracting questions.  Please contact us at info@sustainable-lawyer.com

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