Contracts 101
Many contracts are not reviewed by legal counsel. For various reasons, people opt to do it themselves. With that in mind, here is a short list of general rules and contract clauses to always scrutinize.
Read the entire contract. A contract should be written in terms a regular person can understand. If certain terms or conditions do not make sense, ask questions and clarify.
Deal directly with the decision maker. Dealing with an individual who has no authority to make the requested changes wastes valuable time. The requested changes and reasons for the change may not be very clear by the time those reasons are conveyed through several people.
Do not be shy about making changes to the “standard” contract. There is no such thing as a standard contract.
Read each draft of the contract in its entirety. As revisions are made to a contract, the professional rule is to point out the proposed changes to the other party. Sometimes, either intentionally or by accident, this rule is not followed.
Pay attention to terms regarding terminating the contract. Can the contract be terminated quickly? Is this a long-term contract without a way to terminate the relationship without cause? Is advanced notice required to terminate to avoid automatic renewal? If the contract can be terminated quickly, many of the other contract terms may have less importance.
Pay attention to jurisdiction and venue clauses. Jurisdiction and venue are fancy ways of stating where a lawsuit can be filed. If a contracting party is in Jefferson County, Colorado and jurisdiction and venue is exclusively in another state like New Jersey or New York, the Jefferson County resident may not have a practical remedy.
If the contract requires insurance coverage, get the insurance agent involved before signing the contract. Most lease agreements and commercial contracts have insurance requirements and contain various waivers and releases of liability. Contacting the insurance agent after an accident or incident occurs is risky because the insurance policy may prohibit the waiver or release, the policy may not cover the occurrence or the contractually required liability coverage may be in excess of the existing policy.
Address the issue of death or disability of a contracting party. Just because a person dies does not mean the person’s estate is released from the contract.
Review attorney fees and damages clauses. Many contracts contain one-sided attorneys fees and damages clauses. One-sided attorneys fees and damages clauses can greatly impact bargaining position should a dispute arise.
Consider how an arbitration or mediation requirement impacts bargaining power. Mediation is the voluntary submission of a dispute to a third party for resolution through mutual negotiation. Mediation is not binding. Arbitration is similar to mediation except that there is no mutual negotiation to obtain a compromise solution and the decision of the arbiter is binding. Depending on the particular situation, mediation and/or arbitration may not be beneficial.
There is no right or wrong contract clause. The inclusion, exclusion or modification of a clause is always based on the particular facts of the agreement. Nothing replaces the review of a contract by qualified legal counsel.