#1 - Your Contract MUST be in writing
It’s true that oral contracts are in fact legally binding in many cases, but they are also far harder to enforce in a court of law. The reality is that in some cases, they are completely unenforceable. For this reason, you cannot depend on oral contracts in your business. You must always have any contract you intend to use put into writing if you hope for it to ever be enforceable in a court of law. By spelling out details in black and white where both parties can see them, far less risk is incurred on both sides.
#2 – Only Sign a Contract with the Right Person
One mistake that you need to look out for is signing a contract with the wrong person. It’s absolutely crucial to make sure the person signing the contract has the authority to bind the company they represent to the terms of the contract. If you ever begin to suspect that you are perhaps dealing with someone who is subordinate to the actual decision maker, it’s in your best interest to politely and firmly insist this person be the one you negotiate with. A good rule of thumb is to deal with the owner in a smaller business and the chief operating (COO) or chief executive (CEO) officer at a larger company.
#3 – Make Sure Your Language is Straight Forward & Clear
Some lawyers will tell you that you need an abundance of “legalese” to make your contract valid. This is not necessarily true. The main goal is to make things clear so they are easily understood by both parties and will just as easily be interpreted by a judge if it ever comes down to it. You should, however, absolutely have your business attorney review or draft any contract you intend to use for your business to ensure the language is adequate. A small investment into a bit of their time will save you quite a bit if the contract is ever disputed. The more significant the contract, the more imperative this becomes.
#4 – Make Sure Everyone Is Clearly & Accurately Identified
This is a far too common and costly mistake: failing to accurately identifying the individuals that the contract is going to be signed between. The correct legal name of each party must be used for the contract to be binding and enforceable. Nicknames and pseudonyms cannot be used. Additionally, if a business is incorporated or is an LLC, the right suffix must be included to ensure the correct business is identified. So double checking to make sure you have everyone’s full legal name is a crucial step that could really hurt your business if you fail to do.
#5 – Make Any Payment Obligations Explicit
You need to make it very clear within the terms of the contract who is to pay whom, when these payments should be made, and under what conditions they should be made as well. Money is always at the heart of any dispute over contracts, so making sure you spell this part out is crucial to saving a headache on down the rad. List the dates for payments, whether they come before or after work is completed, and all other pertinent payment details. Anywhere that a conflict might arise, work it out before hand and put it in writing.
#6 – Any & All Details Should be Spelled Out As Clearly As Possible
The obligations and rights of all parties signing the contract need to be laid out in the body of the contract with all relevant details clearly explained. Anything you leave out could come back to be the source of a dispute – so be thorough and cover everything. The issue is that contract law typically requires Judges to interpret the contract itself instead of what the parties themselves say about it. So no matter what you verbally agree on, if it’s not in writing, it’s unenforceable.
It is possible to add short amendments for anything left out. Additionally, if you notice the missing detail at the time of the signing, you can add it in by hand and have both parties initial it for it to become legally enforceable.
#7 – Circumstances Where the Contract Can Be Terminated Should Be Included
It’s important for both parties to protect themselves upfront by defining the different sets of circumstances where the contracted may be terminated. For example, if one party suffers a setback in business and they repeatedly miss deadlines, the other party should be able to terminate the contract. Agreeing to when and how the contract can be terminated beforehand is a great way to protect your business when signing a contract.
#8 – Stipulate the State Laws that Govern the Contract
This is only applicable when parties are in different states, but for that reason, it’s often overlooked and it’s not until an apparent breach of contract happens that the parties involved discover the state laws they believed govern the contract do not in fact do so. In addition to stipulating the state laws that govern the contract, you may want to include details on where mediation, arbitration, or other forms of dispute resolution should take place to save possible additional disputes down the road.
#9 – Include an Agreed Upon Course for Dispute Resolution
Don’t just assume your contract is going to go flawlessly. Instead, assume it’ll go wrong and outline the agreed upon legal method you will use to resolve disputes that arise. Parties involved in legal disputes can save themselves much time and money by pursuing alternative dispute resolution methods like mediation, arbitration, and in some states – trial by special judge. Agreeing on the course of action ahead is crucial to avoiding high legal fees, lengthy courtroom battles, and the scrutiny that often comes with a public hearing.
#10 – Always Keep the Contract Confidential
One reality of many business contracts is that one party will learn business sensitive information about the other. Protecting the best interests of both parties by requiring each party to mutually agree to keep the details they learn of the other’s business confidential is essential in situations like these.
Still Have Questions?
There’s a lot that goes into a business contract, and much that could possibly be left out if you are inexperienced or rushed for time. If you have a business contract you’d like drafted or reviewed, we’re here to help. Yoel Molina is a qualified, experienced, and highly-knowledgeable business attorney serving small to medium sized businesses throughout Florida. If you just simply have questions, give our office a call and we’d be glad to discuss your legal business contract concerns and needs.