Financing the family car, leasing a fleet of delivery vans for your business; planning a wedding, merging two thriving companies. At the heart of every business agreement—large or small, personal or commercial—is the contract. The contract spells out the terms of the business agreement.
When things go sideways with a business agreement, the contract determines the outcome. If you’re trying to enforce your understanding of a business agreement, it’s your sword. If you’re trying to defend your understanding of a business agreement, it’s your shield. The contract is a powerful business tool.
When you sign a contract, you’re agreeing that the written document accurately reflects your understanding of the terms. To ensure that contract will work for you or your business—as your sword or your shield—if the business agreement goes sideways, follow these three key steps.
Read the contract
Whether the contract is a one-page standard form or a 20-page document drafted specifically for the business transaction at hand, take the time you need to thoroughly read the contract. Although the temptation may be to assume everything will go well with the business relationship, read the contract with an eye toward what could go wrong. In addition, highlight all the words you are not familiar with and all the provisions that are unclear to you.
This is not the time to be embarrassed about what you don’t understand. Legal language can be unfamiliar and full of pitfalls. The legal language may create an outcome neither side intends, in which case there is no “meeting of the minds” and the contract may be revised to reflect the parties’ intent. But sometimes the other side may be leveraging legal language to ensure outcomes in their favor. The written terms of the contract are what determine the outcome if a dispute arises. Once you’ve signed the contract, you’ve agreed to the terms. While it may be possible to get out of the signed contract, there will be associated costs of both time and money.
2. Clarify ambiguity
Use your notes to review the contract with the other side. The time to ask questions and clarify your understanding of the contract is before you sign it. Make sure you understand the various contingencies that matter to you with specific questions:
If it rains on my wedding day, can I cancel the horse-drawn carriage?
If I break my leg, can I get out of my gym contract?
What happens if I invent a new design while I’m working for you?
When do you deliver the goods?
When will I have access to the business records to conduct due diligence?
If the other side is unwilling to discuss or negotiate the terms with you, be prepared to walk away from the deal—or move on to step 3.
3. Seek help
As the saying goes, an ounce of prevention is worth a pound of cure. While many day-to-day business agreements don’t require legal review by an attorney, there are times that it’s appropriate to consult with a business attorney before you sign a contract. If the stakes are high, the terms of a contract are particularly burdensome, or the contract terms are difficult to understand, consulting with a business attorney could be your best move. The consultation will cost money, but a few hours with a business attorney to review a contract before it’s signed is always less costly than hiring a litigation attorney to file or defend a law suit.
Even if the business attorney finds everything in the contract to be in order, the consultation can provide you with peace of mind—which, in today’s frenetic world, is valuable in itself.
As a full-service business law firm, we draft and negotiate contracts on behalf of his clients, both individuals and businesses. Call our offices at 800-581-7030 for exceptional legal guidance.