Contracts 101: read this before signing

You receive a business contract and say: "Sign here".

Do not do it!

Read the contract carefully before signing it and follow these guidelines to avoid problems later. Contracts are legal documents and, if they are valid, can be brought to court.

Keep your part of the contract. Whether it's a real estate contract, a commercial sales contract, an employment contract, or a contract between you and a customer or supplier, you can use these guidelines.

Valid contract (legally enforceable), all contracts must: · be clearly defined. As far as possible, both parties should agree on what has been said.· Express the agreement.

After you have given your verbal consent, the contract should include consent. · Be complete. A contract must answer every single question either party may have and anticipate every "what-if" situation.

Most lawsuits arise from contracts that are not clear and complete and that do not express the agreement as intended by the parties Agreement on Definitions All major terms need to be fully defined Many of the difficulties in contracts result from incomplete or missing definitions, in one case unclear definition of "overhead" in calculating payment to an independent contractor sparked litigation.

General expenses are generally administrative and operating costs. However, what is included in overhead costs may vary from company to company.

Explain exactly what terms like overhead mean. Verify the identification of the parts,make sure they are correctly identified.

In most cases, it should be your company that contracts.

If your company has subsidiaries or is part of a holding company, make sure that this is stated.

Check the other party's identity as well. Is that who you think you are? Really the hardest part of any contract.

You are reading a contract that has a section on how the value of a property is determined.

Even if you think you know what was written, ask for an example or question like, “Just for the sake of clarity, I think this means X.

What do you think it means?

Don't worry about looking silly or difficult.

Clarify now, to find out later that you and the other party were thinking of two different meanings.

Contracts are almost always written because verbal agreements can lead to misunderstandings.

And oral assumptions cannot be brought to court when the contract is complicated; it's hard to know what should be in a contract, but it isn't.

In employment contracts, for example, there should be a section that describes how the employer can terminate the contract and what notice periods can be given to terminate the contract and which notice periods must be observed.

For example, some contracts do not have an expiration date or do not fully identify the parties. See this employment contract terms article for an example of the sections of a typical contract.

If you don't see something that should be on the contract, make sure it is on the contract.

Read "Standard Text" carefully and don't be afraid to change it. Standard text is the "standard" language used in many commercial contracts.

An example of standard text could be language that has to do with holding someone harmless for their actions.) An indemnity clause seeks to prevent a party from being sued. It can also prevent you from suing the other party.

Any dispute must be resolved through arbitration, not legal proceedings.

What happens if one of the parties does not meet the obligations under the contract?

This is known as a "breach of contract" and the answer to the question can be in standard text. Read carefully.

Read these long sections of standard text, even as your eyes crossed, and you begin to nod, ask for a simplification or shortening of the section, or to amend or delete it if you disagree Remember that everything in a contract is negotiable, even the "standard language".

Finally, get a Second Opinion When reading a contract drawn up by the other party, don't trust yourself or other non-attorneys to read the contract and find the problems.

Take it to an attorney who knows the laws in your state.

Don't let the lawyer rewrite it (they'll be happy to do that and will charge you for it!). Just ask for feedback on what might need to be changed.

If you want the changes, bring the change list to the table and negotiate.

Following these guidelines to reading contracts may not prevent you from making a mistake and signing a contract that will cause you problems, but it can eliminate some of the most obvious problems and provide clarification, which is always a good thing.