Back to Business: Five Contract Mistakes to Avoid
At IPS Legal Group, 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 often help clients navigate various legal issues they could have 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. However, certain contracts must be in writing 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 performable 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 does not mean you should. Proving the terms of a verbal contract can be a challenge and often turns into a “he said, she said” battle when a dispute arises. You will have to present evidence of the contract terms in court, including emails, text messages, and other documentation. To avoid uncertainty and unnecessary risks, it is best to get the agreement in writing. Even a one-page contract is better than no contract. If the agreement involves complex business relationships or substantial money is at stake, it is critical to have your contract in writing.
2. Online Contracts
The information readily available on the Internet can make us feel like we are experts in many 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 the contract language you find online. Unfortunately, this may create more challenges than it solves. Online contracts may have terms that are not applicable, invalid terms, or even false statements. That is an easily avoidable mistake. 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 ambiguous if the contract terms are interpretable in more than one way. A common type of ambiguous contract is one where the definition of a word 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. The term 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.
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 agreement 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 a “give and take” process that parties must complete to reach an agreement. Once final, the parties must legally adhere to the terms of the contract. If there are terms you disagree with, it will be difficult to avoid contractual obligations without being liable for breach of contract. Just because someone offers you an official-looking agreement and asks you to sign it, it does not mean that you have to agree to the terms presented.
You have the power to negotiate!
The negotiation process is critical to a successful business relationship. Suppose you identify your priorities and objectives for the contract and, ultimately, for the business relationship. In that case, you can avoid the pitfalls of being a party to an agreement that does not please you.
5. Understand the Contract Terms
Reading a contract is not necessarily enjoyable, but it is crucial. Unless you are very familiar with legal terms, there will be contract clauses you do not understand or confuse you. The importance of taking the time to familiarize yourself with these terms and ask clarifying questions cannot be understated. When you know the scope of an agreement, you gain the benefit of understanding your rights and obligations under the contract. You also learn how to terminate the contract, 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 ensure you know exactly what you are signing.
It is common to make mistakes regarding business contracts. However, you can avoid repeating these mistakes by having your contract written or reviewed by a business attorney 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.