We all know that the best practice in business is to put agreements in writing. But many small business owners aren’t doing that. In my experience, a combination of factors can cause this error. Business people generally don’t want to add a layer of fees to business transactions by involving a “lawyer”. Also, business transactions are often time sensitive, so people often don’t think they have time to consult a lawyer. Here are ten elements of any good contract. Follow these steps and you can do it yourself.
1. write it down
Many times oral agreements are legal and binding; however, they are often more expensive and harder to enforce in court (and in some cases, they are not enforceable at all). Most agreements should be in writing. This is where the trouble begins. I’ve had clients use a contract in a commercial agreement in a different situation, with disastrous results. A written agreement is less risky than an oral agreement, but only if you have a document that clearly states the rights and obligations of both parties in the event of a disagreement. Using a formal partnership agreement or contract from an online provider can be just as bad as reusing an old agreement without careful scrutiny. In one case, I represented partners in a partnership dispute. The parties purchased a partnership agreement online that expressly allows individual partners to compete with the partnership. While the clause defies common sense, neither party read the agreement and understood it. So it was executable, much to the surprise of one of the partners.
2. Keep your transactions straightforward.
Contrary to what many lawyers think, you don’t need a ton of legal “babble” to make a contract enforceable. Instead, short, clear sentences and a simple, logical heading system that give the reader a road map of what the paragraph is about is what is needed. Yes, you can write your own contract if you put in some effort。 Just like you can change the oil in your modern car, or work on your bathroom tiles. You must weigh the costs against the benefits of retaining an attorney in a timely manner. An experienced attorney should be able to quote you a flat fee upfront with no obligation, so it doesn’t hurt to ask.
3. Deal with someone who can contract on behalf of the business.
Don’t waste time negotiating business agreements with someone less senior who has to negotiate everything with someone above him or her in the business. If you are not sure who has the authority to bind a business, ask.
4. Accurately describe the parties.
Include the correct legal names of the parties to the contract. Clarify who is responsible for what.
5. Include details in a written agreement.
The agreement should define the rights and obligations of the parties. Most lawyers include language in contracts that indicates that the written agreement is the entire agreement between the parties.
6. Clarify payment obligations.
Clearly, most contracts result from transactions in which one party provides a good or service and the other pays for it. Specify when payment must be made and the payment terms. If you intend to pay in installments or only when the work is completed to your satisfaction, please explain and list the dates, times and requirements. Also consider including the method of payment – check, cashier’s check or credit card.
7. Circumstances for agreeing to terminate the contract.
It makes sense to provide for the circumstances under which the parties may terminate the contract. For example, if one party misses too many important deadlines, the other party should have the right to terminate the contract without having to face legal sanctions for breaching (breaking) the agreement.
8. Specify how the dispute will be resolved and whether the prevailing party will receive attorneys’ fees and costs.
What you and the other party will do if something goes wrong is in your agreement. I don’t like arbitration. In California in particular, this is a very expensive proposition because of the huge fees charged by retired judges serving as arbitrators. Many judges openly admit that they retire from the bench to make more arbitrator money. You also need to carefully consider whether the prevailing party in a legal dispute should receive attorneys’ fees as well as litigation costs such as filing fees, deposition fees, etc. If you may have to for $100,000.00 (I know, I know…now you think I have unusual ideas about modesty! ) The reality is that without the attorney fees clause, you may only win in name because of the high cost of arbitration and litigation. On the other hand, if you are more likely than the other party to breach the contract, you may not need an attorney’s fees/costs clause.
9. Choose state law to govern the contract.
If you and the other party are located in different states, you should only choose one of the laws of your state to apply to the contract to avoid tricky legal disputes later, I can’t think of any reason why you would agree to sue under the law before I write At the time of this writing, a state other than California. In addition, you specify where mediation, arbitration or legal proceedings will take place under the contract. This is an important thing to consider when the other party presents the contract. For example, if you wish to become a franchisee and end up in a legal dispute, you may have to travel thousands of miles to seek a solution under state laws that are very different from California law.
Often, when a business hires another business to provide a service, the other business will have sensitive commercial information. Your agreement should contain a mutual commitment that each party will keep confidential any business information it learns in the performance of the contract. This clause is very different from a non-compete clause. California’s law on non-compete clauses is unique and the subject of another article.
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