Contracts are designed for one purpose in my mind: to place in writing your contractual responsibilities, rights, and waivers in case your agreement is broken. If you sign a 1-year lease or a 30-year mortgage, and you pay on time every month, no one really cares what the contract says. If you get a credit card and you agree to the repayment terms, no one cares about the fine-print until you stop paying. If you promised to pay someone money and signed a promissory note, the terms of the promissory note only matter when you get sued. Perhaps you can relate to someone that read 250 pages of mortgage documents in five minutes, which is impossible even for the fastest speed-reader.
For the most part, contracts say one of two things: (1) I will loan you money and you agree to pay me back with interest over a certain amount of time; or (2) I agree to provide you with a service or product and you agree to pay me for it. That is the easy part.
Now, onto the three questions that you did not think of or look for in that contract:
1. IF THERE IS DISPUTE ON THE CONTRACT, WHERE IS THE COURT LOCATED THAT YOU WILL HAVE TO SETTLE YOUR DIFFERENCES?
Lawyers call these clauses exclusive jurisdiction, venue, and choice of law provisions. By way of example, I recently had a case come across my desk where the defendant was being sued for leased kitchen equipment in a commercial facility. The client has a great case insofar that the client can prove that it paid for all of the equipment and all the defective equipment was returned. The problem is that the lawsuit was filed in Sacramento, CALIFORNIA. The Contract has a provision that says that all disputes will be settled in Sacramento and according to California law. The problem is obvious.
This happens to a lot of small businesses and individuals who deal with national companies and suppliers. If you get your widgets from someone local, then you are likely fine. But if your widget is a national product (such as ovens, cellular phones, copy machines, and etc.), take notice of where disputes will be settled. These provisions are typically at the end of the contract.
2. IS THERE AN ATTORNEY’S FEE PROVISION IN THE CONTRACT?
For small businesses, you really need to ask your contract attorney whether you want to have an attorneys’ fees provision in your contracts. Alternatively, you need to decide whether you want to sign a contract with an attorneys’ fee provision.
Attorneys are expensive. Part of the purpose of writing this weekly is to take away the fear of attorneys despite our rates. I would love to count the number of total articles published as of today’s date. I do know that a simple case can quickly get out of hand because of a contractual attorneys’ fee provision. A $15,000 case can quickly accumulate $30,000 in attorneys’ fees. If you lose, that is a much bigger problem than the actual default. Almost all standard contracts have attorneys’ fees provisions in them. For other cases, such as landlord/tenant, civil theft, and bounced checks, the statutes allow you to recover attorneys’ fees.
3. IS TIME OF THE ESSENCE?
I love “Time is of the Essence” clauses in contracts for consumers. Imagine you hire someone to fix your roof and the roofer tells you they will have it done in three days. The timing is important to you because you are getting a new roof before the rains start in seven days. If you have a ‘Time is of the Essence” clause, it means that the roofer knows that timely performance and completion is critical to the performance of the contract. If you do not have the clause, three days could turn into, well, hurricane season.
These are the three most important questions beyond the monetary issues. With that, I leave you with the:
There are three types of contract attorneys: transactional attorneys that draft contracts, litigation attorneys that litigate breached contracts in court, and those very special Jedi attorneys that do both. What I will caution you with is that on average, the contracts that I have been discussing today are usually two pages. The front side contains all of the financial provisions that you understand and agree to. There is a small sentence that says you agree to all of the terms on the back of the contract. There are typically 15 or so additional paragraphs of legalese. Start with recognizing the three questions/areas of concerns in this article and you will quickly realize that the back-side of the contract should be your main point of concentration.