Do's and Don'ts: Contracts Terms
Contracts are legally enforceable agreements between two or more parties, and are quite common in almost every facet of the business world. While some contracts may be as simple as a verbal agreement or a purchase order, others are much more complex and involve higher stakes. Below are suggestions for what to do, and what not to do, when drafting or signing onto a contractual agreement.
Do start with a generic form as a guide, and adapt it to your particular situation.
Do entitle the document "CONTRACT" so that there can be no mistake as to its intent.
Do make sure the parties are properly identified in the first paragraph, that names are spelled correctly, and that addresses are accurate.
Do include the date in the first paragraph so that it is easy to refer back to after contract execution, and so that the contract can later be identified by date, such as "the November 20, 2001 Contract for the Sale of Goods."
Do use common-sense headings to make it easier to find particular provisions in the contract.
Do number the paragraphs for ease of reference.
Do use plain language whenever possible.
Do define all technical terms.
Do consider the placement of punctuation marks, since even a misplaced comma can change the meaning of a sentence.
Do carefully review the use of conjunctions, especially "and" and "or," since the word you choose can have a dramatic impact on meaning.
Do make sure the contract addresses all possible contingencies and that nothing is left to chance.
Do have your attorney review every contract before you sign it.
Do ask your attorney any questions you may have about the contract -- remember, there is no such thing as a stupid question, but it can be stupid to let a question go unanswered and pay for it later.
Do sign in blue or other colored ink to make the original easily distinguishable from photocopies.
Do initial every page of the contract and make sure the other party does the same so that nothing is missed.
Do include notarization if required by applicable law.
Do retain a copy of the contract for your records.
Don't include legalese or archaic phrases like "the party of the first part." "heretofore," etc. They generally add little in terms of clarity.
Don't include overly long sentences; rather, break sentences down into easily digestible thoughts.
Don't be repetitive unless it is absolutely necessary. It is preferable to refer back to a previous provision according to its number or heading rather than to repeat it verbatim.
Don't assume the other party defines terms the way you do. If there is any doubt, include a definition in the contract.
Don't read the contract over hurriedly. It takes time to understand all of the possible nuances of the language used.
Don't accept the other party's oral explanation of a confusing term. Include everything in writing.
Don't start acting according to the terms of the contract until both parties have executed it.
Don't agree to a modification of the contract without memorializing it in writing.
Don't assume that use of a standard or form contract eliminates the need for your lawyer's review. Even if a standard contract worked well in one instance, a change of circumstances, date, or party can change the whole equation.
Get an Attorney's Help Before Making a Contractual Agreement
It's not necessary to consult with an attorney every time you or your business enters into a contractual agreement, but sometimes it's crucial. Even one word out of place, or a forgotten clause, could cost your business dearly. If you need help drafting a particularly complex or high-stakes contract, be sure to consult with a small business attorney near you.