What to Look for When Signing a Contract
Before signing a contract, there are general things you should always look out for. We won’t cover everything here because most things are very contract specific, but there are some general things that I can give you tips on.
Always make sure that you have the proper parties named in the contract. There are usually at least two parties to a contract. Make sure they’re the right parties. For example, if you are trying to sign a lease for a building on behalf of your company, you would want the lease to be in the name of your company, not you individually. Generally, with leases you personally guarantee the money, but you still want it to be in the company’s name, not your own name.
Another major thing in any contract to be aware of are the consequences of a default. Default, meaning, breaches the contract does something contrary to what they agreed to in the contract. That’s a default generally. Every contact is different, but generally there is a notice period. If someone defaults, then written notice is generally required. It’s important to know what the consequences are and how you handle defaults. There are different kinds of defaults as well. To go back to the lease example, if you stop paying rent, you’re in default under the contract. It varies, but you want to pay attention to the default clauses.
Another thing to look out for are indemnity clauses. What does that mean? Indemnity means that you are indemnifying the other person or vice versa if something goes wrong. Let’s use the lease example; there’s generally an indemnity provision whereby the person that is leasing the premises, indemnifies the landlord. So the tenant generally indemnifies the landlord for any events that may occur on the property while the tenant is leasing the premises. For example, if somebody slips and falls in a store, it’s going to be the tenant problem. It’s not going to be the landlord’s problem, the owner of the building’s problem. If it’s somehow the landlord of the building is sued, then the tenant generally will be agreeing to defend them except in certain conditions. So you want to look at that clause and see whether you’re responsible for indemnifying, the other party and in under what conditions and circumstances.
Something that should be in contracts, which frankly are not always in contracts, especially if they’re not written by attorneys or you’re not using a form that was ultimately generated from an attorney, is choice of law. There should be a choice of law provision in there. Why is this important? Because you want to make sure that if there’s a dispute, that the law that is applied is the proper law, and most of the time, you’re going to want it to be the law where you’re located or where the substance of the contract is located. Make sure you’re looking at choice of law because, you may be in Nevada signing a contract and the choice of law is Illinois. That’s going to be more difficult for you because you’re not in Illinois and you’d have to call an Illinois attorney. Think about those things, pay attention to them. Along the same lines is a choice of venue clause. Venue is where it is going to be litigated. Again, you’re likely going to want to litigate wherever you are. It’s not always possible depending on what kind of contract you’re dealing with because the other side may have more leverage. Generally, for your purposes, you want to be in your state and your county with your court system.
Things to look at and to distinguish that even more, when I say choice of law and choice of venue, just an example of that is the choice of venue could be Nevada, but the law that they have to apply is Oregon law. So that’s something that can happen. I don’t think people know that, but you can be litigating in Nevada, but applying Oregon law, that that’s absolutely something that can happen. Pay attention to those two clauses as well.
Another one that may or may not be in there is an arbitration clause, and there’s pros and cons to this. The arbitration clause generally says, we’re not going to litigate. Both parties agree that if there’s a dispute, then we’ll go to mandatory binding arbitration in lieu of litigation. Why would people want to do this? Because arbitration is going to be cheaper and quicker and easier than going full blown litigation, because litigation can be very expensive, and it can go on and on for a really long time. So a lot of parties agree collectively to just arbitration if there’s a dispute.
Along the same lines of that is the attorney’s fees clause. So some contracts you’ll see, you got to pay attention if they have an attorney’s fees clause, cause sometimes they will, which is good and bad, it just depends on what side of the fence you’re on if there’s a dispute. Generally, if they have an attorney’s fees clause, if there’s a dispute and there’s litigation, then the prevailing party is entitled to attorney’s fees and costs. As long as you are the prevailing party, then you definitely want that clause in there.
We use it all the time when we’re litigating, if we prevail in and we’re litigating a contract and there is an attorney’s fees clause, then you’re much more guaranteed to actually get the fees and costs in the end, because if you’re litigating and there isn’t an attorney’s fees clause, and you do prevail, it’s completely up to the judge and his or her discretion, whether you get those attorney’s fees from the other side. If you have that clause in the contract, you’re in a much better position to get your attorney’s fees awarded.
To recap, these are the types of things that you want to look for when you’re signing a contract, look at the proper parties, the indemnity clause, the default clause, the choice of law clause, choice of venue, clause, arbitration clause, and attorney’s fees clause.
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