When a contract involves a large sum of money or is otherwise important, it is imperative that you get a lawyer involved to solidify the contract’s enforceability and to ensure that the contract accurately reflects the parties’ agreement.
Of course, it’s not always realistic or cost effective for businesses to hire a lawyer to review every contract involving low stakes. For example, if a business is changing suppliers in order to save a modest amount of money, hiring a lawyer to review the contract could eliminate some (or all) of the cost savings.
“And, if it turns out that the contract the parties signed is unenforceable or somehow defective, it’s usually not a huge problem because the deal itself was not that important to the company in the first place,” says Adam Waskowski, attorney with Novack and Macey LLP. “That’s why the company didn’t hire a lawyer to begin with.”
When businesses go it alone in preparing their contracts, there are some steps they can take to avoid turning a small deal into a big headache.
Smart Business spoke with Waskowski about the measures that can help businesses avoid signing contracts with unintended consequences.
Can companies just use language from old contracts?
No. Don’t do this. Sometimes businesses try to create new contracts using templates from previous deals or, worse yet, from Internet forms. For example, they might pull up Word versions of old draft contracts, change the parties’ names, make what they think are minor revisions (usually at the other parties’ request) and then sign the documents.
However, when people attempt to do this, they rarely get it right, and sometimes inadvertently include terms that they didn’t agree to — or delete terms they meant to keep in. Changing just one word of a contract — or even using a word differently in part of the contract than it is used in another part — can drastically change the contract’s legal effect. Accordingly, to draft a legal contract, you really need to know what you are doing.
So if businesses shouldn’t use forms, and the deal doesn’t justify hiring an attorney, what should it do?
You can do the deal if it makes business sense. Just don’t sign anything you don’t understand. In most situations, you don’t need a formal document containing specific fine print and legalese in order to form a contract. The best thing to do — if you must enter into a contract without getting a lawyer involved — is to simply memorialize in writing what you think are the really important terms and have both parties sign the document.
In most cases, these terms include, without limitation, price, quantity and timing. For example, if you are looking to purchase 1,000 widgets for $1,000 each, to be of some quality recognized in your industry, and you need the widgets delivered to your place of business by April 1, 2013, it is probably sufficient to prepare something that says: ‘This confirms that [Name of seller] will sell [name of buyer] 1,000 widgets for $1,000 each. The widgets shall be delivered to [place of business] by April 1, 2013, and shall be of [insert industry standard] quality.’ If both parties sign a document agreeing to these terms, that’s likely sufficient.
Likewise, in a contract to provide services, the important terms might include the services to be provided, the time that the services will be provided, the person who will provide the services (if this is important), and the cost of the services. This process is not, however, foolproof. It may not result in an enforceable contract. But piecing together old forms of contracts won’t necessarily create an enforceable contract either. And by keeping things simple — and using language you understand — you will avoid agreeing to terms by which you did not intend to be bound. In most cases where the stakes are low, it’s better to enter into an unenforceable contract than to inadvertently enter into, for example, a 10-year exclusive contract when you thought the contract would be terminable at any time.
Can a person who has negotiated numerous similar contracts before just use forms?
You should be careful, especially if you are modifying the form or entering into a deal that differs from the previous deals. Lawyers aren’t geniuses, but reading legal documents is a very specific skill set that takes experience and training to do competently. In some respects, legal contracts are a bit like computer programming. One small change to the code can drastically change — or wreck — the program.
What if the other side proposes a contract containing lots of fine print?
In most cases, you shouldn’t approve the fine print — especially clauses that you don’t think you completely understand — without having an attorney review it, at least briefly. As a business litigator, I’ve frequently represented clients who signed contracts that they believed were ‘small’ deals where the underlying contract — unbeknownst to the client — provided for automatic renewals, longer or different contractual terms than the parties discussed, severe penalties for early termination, one-sided attorneys’ fees provisions (where you pay the other side’s attorneys’ fees if they win a lawsuit over the contract, but the other side does not pay your fees if you win), and so on.
If you want to do the deal without having an attorney review the written contract, I’d suggest crossing out the fine print if you have bargaining power. There are very few times when all that fine print is really necessary, especially if someone is trying to win your business. The fine print is invariably just a bunch of very one-sided provisions favoring the party that drafted it.
What if the signed contract contradicts earlier agreements?
You are probably stuck with the terms of the written contract. The written contract is the deal, notwithstanding what you think you’ve agreed to.
Adam Waskowski is an attorney with Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected].
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