People often enter into contracts without reading them. They often neglect to find out who their negotiating partners are or read the fine print. This post is meant to give you some pointers on what you could look for in a contract before you sign on the dotted line.
A contract is simply defined as ” a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognises as a duty” (“Anson’s law of contracts”, Beatson et al, 2010).
A contract has a number functions, it ensures that the promise of some future performance is fulfilled, it also establishes what the responsibilities of the parties are and seeks to ensure that the agreed standards of performance are met. It also allows for prior agreement to be reached regarding what could happen if something was to go wrong. That’s legal speak which means simply that a contract is an agreement between parties to perform a specific task, at a specific cost within a specific period to a specified standard which could be enforced by some legal authority”.
Now that you have an idea of what a contract is, here’s what you need to ask yourself or look for:
- Is the subject matter legal? I know it sounds silly but you need to ensure that the contract itself is a legal one, there should be no illicit goods or services forming the basis of your contract. If the subject matter is illegal the contract will be void from inception.
- Do you know who you’re doing business with? Do you have information on this person’s or company’s background or reliability? Do not do business with parties you do not know or who you have no references or information on.
- Do you understand everything you’ve read? Is anything in the contract new to you? Have you read these particular details before? If you don’t understand any part of the contract, please ask for clarification or if you can afford it, get a lawyer or someone you trust to read it and explain the terms to[ you. Don’t let anyone intimidate you into signing a contract.
- Look for any unreasonable or unfavourable terms. Do you feel uncomfortable about anything you’re reading? Does the contract seem skewed in favour of the other party? Then speak up, don’t sign it if you’re uncomfortable, try to negotiate better terms that are more reasonable and in your interest.
- Look for the obligations on either party. Who is supposed to do what, where when and how? Be sure that you know what is required from you and what is required from the other party, and be willing and able to execute your obligations in the manner you have agreed to, and as far as possible ensure that the other party can execute their obligations as well. Do they have the resources, tools, personnel?
- Look for clear statements as to cost and payment responsiblities. Is this clearly stated in the contract? Are the parties clear and certain about the agreed payments?
- Look for information on confidentiality. Is confidentiality addressed in the contract? Is this something that the parties have considered or discussed?
- How will the contract be brought to an end? Is there a termination clause or a sunset clause, have you considered what will happen when and if you or the other side wants to end the contract before the agreed end point?
- Look for information on dispute resolution, is there a clause on how differences of opinions and disputes will be settled? Will it be by mediation or arbitration?
- Look for limits to your own and the other party’s liability, are you going to enter the contract as an individual or a business? Individuals and businesses handle liability differently, know these limitations.
Good luck!
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