Back to Business: Five Contract Mistakes to Avoid
We work closely with business owners and entrepreneurs every day. Although we aim to help clients with their business needs from the beginning of the process, we are often called to help clients navigate through a variety of legal issues that could have been avoided if a proper contract was in place. Here are the most common mistakes to avoid when entering a business relationship and signing a business contract.
1. Verbal Contracts
From a legal standpoint, and under the right circumstances, verbal contracts can be just as valid as a written contract. There are, however, certain contracts that must be in writing in order to be enforceable. For example, a contract for the sale of land must be in writing. Otherwise, it is automatically considered void. Conversely, a contract that can be performed in less than a year does not need to be in writing to be considered valid. But not so fast! Just because you can do business without a written agreement in place, does not mean that you should. Proving the terms of a verbal contract can be a challenge and, when a dispute arises, it often turns into a “he said, she said” battle. In court, you will have to present evidence of the contract terms including emails, text messages, and other documentation. To prevent uncertainty and to avoid the risk, get the agreement in writing. Having a one-page contract is better than having nothing at all. If the agreement involves a complex business relationship if there is substantial money at stake, it is critical to have your contract in writing.
2. Online Contracts
The information that is readily available on the Internet can make us feel like we are experts in a myriad of subjects. Reality check: we’re not. At least, not without the proper education and experience. As with verbal agreements, it may be easier and cheaper to copy contract language that you find online. Unfortunately, this may create more challenges than it solves. Online contracts may have terms that are not applicable, terms that are invalid, or even false statements. That is a mistake that is easily avoidable. If you are not an attorney, do not put yourself at risk by trying to act like one. Only an experienced attorney can draft a contract for your situation that completely protects you.
3. Ambiguous Contracts
A contract is considered ambiguous if the contract terms can be interpreted in more than one way. A common type of ambiguous contract is one where the definition of a word that is not clearly defined. For example, if the parties to a contract are from the United States and Canada, and the contract references the word “dollar”, the term may be subject to more than one interpretation as it could mean the U.S. dollar or the Canadian dollar. In the face of a contract dispute, the general rule is that a court will construe the ambiguous contract terms against the party who wrote the agreement. But how can ambiguous contracts be avoided? The best ways to avoid ambiguity is to attach related documents to the contract, accurately define key contract terms, and ask an experienced contract attorney to review the contract to resolve any ambiguous terms that may cause future issues.
4. Contract Negotiations
“In business, you don’t get what you deserve; you get what you negotiate.” ~Chester L. Karrass Contract negotiation is the process of “give and take” that parties go through to reach an agreement. Once a contract is final, the parties are legally bound to the terms of the contract. If there are terms that you do not like, it will be difficult to avoid your contract obligations without being liable for breach of contract. Just because someone hands you an official-looking agreement and asks you to sign it, it doesn’t mean that you have to agree to the terms that are given to you. You can negotiate! The negotiation process is critical to a successful business relationship. If you identify your priorities and objectives for the contract and, ultimately, for the business relationship, you can avoid the pitfalls of being a party to an agreement that you are not happy with.
5. Understand the Contract Terms
Reading a contract is not necessarily fun, but it is important. Unless you are very familiar with legal terms, there are going to be contract clauses that you do not understand and others that may confuse you. The importance of taking the time to familiarize yourself with these terms and ask clarifying questions cannot be understated. When you understand the scope of an agreement, you gain the benefit of understanding your rights and obligations under the contract. You also learn how the contract can be terminated, whether it automatically renews, and what steps you need to take in the event of a breach of any given contract terms. Ask an attorney to review the final contract with you to make sure you know exactly what you are signing.
It is common to make mistakes regarding business contracts. You can, however, avoid repeating these mistakes by having your contract written or reviewed by a business lawyer who understands how to protect your business interests. Contact IPS Legal Group, P.A. today to have your business contracts reviewed.
Disclaimer: This blog is not intended to be a substitute for legal advice or instruction. Every business is different, and the above might not be applicable to your situation. Contact IPS Legal Group, P.A. today to discuss your business needs.