Creating Certainty with Clear Contracts

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By Catherine Anne Riechenberg

Honesty and excellent communication are the hallmarks of successful people and businesses.  As the saying goes, “say what you mean and mean what you say.”  The contracts you use to solidify your business deals should be no different.  It is commonly believed that lawyers make their money inserting excessive legalese, subparts and other confusing language into otherwise intelligible agreements. The truth is that confusing contracts lead to litigation.  A good attorney will work with you to draft precise, clear and succinct contracts to help your business succeed.

So, you’ve reached an agreement with another person or business.  What do you do now?  Use the steps below as a guideline to make certain your written agreement is helping you and your business.

1.     Make Sure You Have An Agreement

All contracts require that the parties have reached a “meeting of the minds” on the essential terms in order to be valid.  There must be a fundamental agreement as to who is entering into the contract, what they are each promising to do, and when they promise to perform.  From time to time the parties may think they have reached an agreement up until they begin to reduce it to writing.  Further, separate parties may have an understanding or belief that is not properly reflected in the contract itself.  Remember: If it isn’t in the contract, your understanding or belief may be incorrect or not shared by the other party.  Make sure that you have reached a precise agreement and that the agreement reached is specifically reflected in the contract as drafted.

2.     Use Clear Language

If you one day must enforce your contract in the courts, the judge will look to the contract as drafted to determine the parties rights.  Therefore, it is imperative that the contract be clear on its face.  Look for holes and fill them.  Define terms used.  Any ambiguity could be interpreted against you, so at the outset read through your contract critically to make sure a third party would understand the specific understanding and promises made by the contracting parties.

Remember though, the clarity of a contract is not reflected by its length.  It is important that the language used be precise and understood by the contracting parties, but it doesn’t mean that over-drafting will help you should things go side-ways.  As such, avoid using contracts with words like “insofar,” “whereas,” “hereby,” etc. or unnecessary boilerplate phrases. Generally, legalese terms and boilerplate language can be simply removed to make the contract more understandable and clear.

3.     Balancing Act

A good contract both reflects the parties mutual understanding of what is expected of both of them while providing the proper protections should anything go awry.  The more clear the expectations of each are laid out in the contract, the better.  Addressing concerns, questions and specifics up front will save you time and money later.

A more experienced lawyer once told me “when people enter into contracts, everybody is in love and they don’t think through what will happen when everything falls apart.”  Learn from other’s mistakes and think ahead to what you’ve agreed will happen when and if the other side doesn’t perform.  What penalties are there, if any?  Where have you agreed to handle your dispute (city, state, court, arbitration, etc.)?  What law will apply?  If there is a dispute, is the prevailing party entitled to attorney fees and costs?  Make sure you negotiate, understand and agree to these terms in the beginning as they may very well help you in the end.

4.     Review, Question, and Revise

Have an attorney review your contracts, ask questions and revise your agreement as necessary.  A well-drafted contract will save you money in the long run.  It also helps the parties communicate their expectations and understanding so that when they do perform, they’re doing what they agreed, not what they thought they agreed to.

5.      If It Doesn’t Come Together, It’s Ok

You can’t make good deals with bad people, and litigation is never a good business venture.  If you can’t agree on contract terms, in some instances it’s a sign of issues downstream.  Take the time to ensure everyone is in agreement, that everyone understands the contract, and that you are comfortable with its terms so you can move forward in a positive direction.  Also take the time to have both sides seek the advice of separate legal counsel.  In the long run, you and your business will be more successful because you took the time to do it right.

Catherine Reichenberg is a Senior Associate at Gunderson Law Firm, and represents a variety of local, regional and national clients from business owners, commercial and residential real estate brokers and agents, homeowners, professionals, developers, contractors and others. She can be contacted directly at creichenberg@gundersonlaw.com or 775-829-1222.

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