What to do Before You Sign a Contract

Photo by: Anthony Delanoix

Photo by: Anthony Delanoix

Congratulations! You made a deal, reached an agreement, or resolved a dispute and now you’re ready to sign a contract to make it all official.  If this contract is important enough to you, pause for a minute, read it carefully, and ask an attorney to review it.

Why?

There are 2 reasons:

  1. Whoever drafts the contract will include terms and provisions that are in their favor. They have no obligation, duty, or interest (generally) in watching out for your interest. But your lawyer does.
  1. Every time I review a contract and explain the various clauses to my clients, there are a few clauses that my clients did not understand or was against their interest and invariably had to be negotiated and revised.

You may have an engineering degree from MIT and be the smartest person in the room but unless you’ve seen the same clauses day in and day out and have seen their implications in the litigation context, you may not have an accurate understanding of the contract.

Contract pitfalls to look out for.

This is by no means an all-inclusive list.  Part II is in the works.

One-sided attorney’s fees: I see this a lot. In California, the default rule in a legal dispute is that each party pays its own attorney’s fees and costs unless that default rule is changed by statute or the parties’ contract. I have seen many contracts that provide for one-sided attorney’s fees provisions. That is, if the party that drafted the contract wins in a dispute, that party can also recover its attorney’s fees from the losing party. If something similar is in your contract, you are putting yourself at a disadvantage and setting yourself up to argue over that clause should a dispute arise.

Choice of law and venue provisions: When entering into a contract with a company or an individual with ties to another state, be particularly mindful of what laws govern the contract and where disputes are to be resolved. If you live in California and California laws provide you with more protections, do you want to be subject to New York law and have to litigate any dispute in New York? It is much easier to negotiate these things in advance, when relationships are friendly and the parties want to work together than after a relationship has soured.

References to documents not attached to the contract: Does your contract refer to a price sheet, list, or some other document that should be attached to the contract but isn’t? If any other documents are referenced, make sure they’re attached so that everything is in one place and there is no dispute as to what is in those documents. You want to see everything that you’re agreeing to and having a complete contract could help you resolve disputes amongst yourselves without the need for expensive litigation in the future.

Entering into a business relationship with clarity and a firm understanding of each party’s expectation is critical to the success of the relationship but if a problem does come up, a well-negotiated contract will put you in the best position.

Learn more about contracts.

More from the What to Do series.

Schedule a call if you received a contract and have questions.

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In: Contracts, What to Do

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