Essential Things to Consider Before Signing a Contract

Just about every business and individual has had to review and sign a contract.  We often are consulted by clients who have regrets about signing a bad contract and are looking for a way out of the contract.  Unfortunately, with some exceptions, it is very difficult to get out of a written contract or avoid enforcement of the contract’s terms once the contract is signed.  Therefore, it is essential that any business or individual who is called upon to review and/or sign a contract consider the following things:

1.  Make sure you are contracting with a reputable party who you have investigated before signing the contract.

2.  Make sure the contract clearly and accurately describes the parties to the contract – if a business entity is a party to the contract, make sure the contract states the correct name and form of the entity (i.e. corporation, LLC, partnership, etc.) and identifies the state of formation (i.e. ABC Corporation, a California corporation).

3.  Make sure the start date (often called the “effective date”), the end date and the term of the contract is clearly stated.

4.  It is essential that the contract states all understandings, agreements and terms of the contract – it is extremely difficult to contradict the terms of a written contract with oral terms or documents outside the contract (this is called “extrinsic evidence”).

5.  All financial terms of the contract (including payment terms, dates, amount of payment, currency if appropriate, manner and location of payment, and consequences for non-payment) must be clearly stated.

6.  In contracts for purchase and sale of goods, the product(s) that are being purchased and sold must be specifically identified and terms such as the quantity, price, quality, and shipping terms must be stated.

7.  The remedy for breach of the contract must be stated and it is critical to set forth the terms of a cure period for default, if agreed upon.  Consider whether some form of alternative dispute resolution such as mediation or arbitration might be appropriate.

8.  All other important terms should be stated.  Consider whether to specifically a place for any lawsuits that might be filed (this is called a choice of venue or forum selection clause).  Also consider which state’s law will govern, whether to include an attorneys’ fee clause, and how any required notice will be given.  An address for each party to the contract should be provided for purposes of giving notice.

9.  Finally, make sure the signature block is correct.  If you are signing on behalf of a business entity, the contract should not be signed in the name of the individual officer or employee who signs, but rather the signature block should set forth the name of the entity, indicate that the signer is signing on behalf of the entity, and state the position of the signer.  For example, “ABC Corporation by _______, its Treasurer.”

These are but a few of the many important things that should be considered before entering into a contract.   And remember; it always is a cheaper and more effective business strategy to have a lawyer review a proposed contract before it is signed than to have to litigate about a contract after it is signed.

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