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Contracts 101 (for the non-lawyer)

Practically everyone has entered into a contract at some point. Whether it was purchasing a car, beginning employment, or hiring a construction crew to remodel your bathroom, contracts are present in most facets of life. While most of us know that a contract creates a legal obligation between two or more parties (individuals, businesses, organizations, etc.), we may not be familiar with some of the fundamentals of what should be included in these legal documents, or perhaps more importantly, possible ways out of a contract. This article provides some basic recommendations in the world of contracts.

Where to Start

First, ensure your contract is in writing. Although some oral agreements may be legally binding, they’re often difficult to enforce in court. Particularly in a business setting, contracts should be in writing. Contracts should also be simple and easy to understand. Some contract drafters will add unnecessary language that can be confusing and even misleading. Clear, short sentences and a logical structure will help the parties understand what they are entering in to and also help a judge or arbitrator examine the contract if a legal dispute arises.

If you are presented with a contract, it is critical to contact a lawyer to review it before you sign and bind yourself to it. As noted above, contracts are often long, confusing, and misleading. It is important to have a qualified lawyer examine the proposed contract and explain the legal ramifications of what you are entering into.

What to Include

Depending on the type of contract, there may be many different types of clauses. For example, an employment contract will spell out the job responsibilities, salary, and how any disputes will be handled. A service contract, on the other hand, will include the work to be done, a timeframe for completion, and compensation.

However, there are certain clauses that you will want to make sure are included in your contract to protect you and your interests. Some of these clauses include injunctive relief, venue provisions, attorney fees and costs, liquidated damages, applicable state law, penalties for breach of the contract, and terms of termination. A solid contract will also state how long the agreement will last—is it for a one-time exchange or on-going services? It is also important to be aware that a minor breach of the contract may not void all terms of the contract. Ensure you fully understand your responsibilities and possible remedies you may have in certain circumstances. Again, this is where the value of having a lawyer review your contract comes in.

How to Terminate

It is also important to know how the contract may be terminated. You may wish to terminate a contract when the other party does not fulfill his contractual obligations.

There are countless ways to terminate a contract, but it typically relates to defective or bad faith performance or in unclear wording that led to differing interpretations among the parties. Performance is what is called for in the contract. If the other party has not performed in accordance with the contract, it may be terminated. You may be able to terminate a contract because of fraud, misrepresentation or mistake in drafting the contract. If the other party has misrepresented the services or goods they will provide, this may be grounds for termination.

There are many ways a contract can be terminated and it is important to understand how both you and the other parties may be able to terminate. .

Should you have any questions or you would like to discuss this issue in further detail, please do not hesitate to contact us to schedule a free consultation.

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