The unconscionability defense is concerned with the fairness of both the process of contract formation and the substantive terms of the contract. When the terms of a contract are oppressive or when the bargaining process or resulting terms shock the conscience of the court, the court may strike down the contract as unconscionable.
The unconscionability defense applies to a wide variety of types of conduct, so a court will look at a number of factors in determining if a contract is unconscionable. If there is a gross inequality of bargaining power, so the weaker party to the contract has no meaningful choice as to the terms, and the resulting contract is unreasonably favorable to the stronger party, there may be a valid claim of unconscionability. A court will also look at whether one party is uneducated or illiterate, whether that party had the opportunity to ask questions or consult an attorney, and whether the price of the goods or services under the contract is excessive.
Contract Defenses: Public Policy and Illegality
Rather than protecting the parties to a contract as other contract defenses do, the defenses of illegality and violation of public policy seek to protect the public welfare and the integrity of the courts by refusing to enforce certain types of contracts. Contracts to engage in illegal or immoral conduct would not be enforced by the courts.
Contract Defenses: Mistake
A contract can be canceled on the grounds of mutual mistake of fact. In order to cancel a contract for mistake, both parties must have made a mistake as to a basic assumption on which the contract was based, and the mistake must have a material effect upon the agreed exchange. The mistake must relate to facts existing at the time the contract is made. In addition, the party seeking to avoid the contract must not have contractually assumed the risk of mistake. Parties sometimes attempt to claim mistake as a defense to a contract when they have failed to read the contract and later become aware of terms they dislike. Failure to read the contract is not a defense. A person who signs a contract is presumed to know what it says, and is bound to the terms she would have known about, had she read the contract.
วันศุกร์ที่ 8 มิถุนายน พ.ศ. 2550
Will Your Contract Be Enforced Under the Law?
A minor generally cannot form an enforceable contract. A contract entered into by a minor may be canceled by the minor or by his or her guardian. After reaching the age of majority (18 in most states), a person still has a reasonable period of time to cancel a contract entered into as a minor. If, however, he or she does not cancel the contract within a reasonable period of time, the contract will be considered ratified, making it binding and enforceable.
If a person signs a contract while drunk or under the influence of drugs, can that contract be enforced? Courts are usually not very sympathetic to people who claim they were intoxicated when they signed a contract. Generally a court will only allow the contract to be avoided if the other party to the contract knew about the intoxication and took advantage of the intoxicated person, or if the person was somehow involuntarily intoxicated (e.g. someone spiked the punch).
Contract Defenses: Undue Influence, Duress, Misrepresentation
Coercion, threats, false statements, or improper persuasion by one party to a contract can void the contract. The defenses of duress, misrepresentation, and undue influence address these situations:
To claim the defense of duress, a party must show that assent or agreement to the contract was induced by a serious threat of unlawful or wrongful action, and that she had no reasonable alternative but to agree to the contract. Blackmail is an example of duress.
Undue influence is a type of improper persuasion that causes a person to enter an unfair transaction. Undue influence is often defined as unfair persuasion by a person who, because of his or her relation to the victim, is justifiably assumed by the victim to be one who will not act in a manner that is inconsistent with the victim's welfare.
The defense of misrepresentation focuses on dishonesty in bargaining. A misrepresentation may be: 1) a false statement of fact, 2) the deliberate withholding of information which a party has a duty to disclose, or 3) an action that conceals a fact (for example, painting over water damage when selling a house).
If a person signs a contract while drunk or under the influence of drugs, can that contract be enforced? Courts are usually not very sympathetic to people who claim they were intoxicated when they signed a contract. Generally a court will only allow the contract to be avoided if the other party to the contract knew about the intoxication and took advantage of the intoxicated person, or if the person was somehow involuntarily intoxicated (e.g. someone spiked the punch).
Contract Defenses: Undue Influence, Duress, Misrepresentation
Coercion, threats, false statements, or improper persuasion by one party to a contract can void the contract. The defenses of duress, misrepresentation, and undue influence address these situations:
To claim the defense of duress, a party must show that assent or agreement to the contract was induced by a serious threat of unlawful or wrongful action, and that she had no reasonable alternative but to agree to the contract. Blackmail is an example of duress.
Undue influence is a type of improper persuasion that causes a person to enter an unfair transaction. Undue influence is often defined as unfair persuasion by a person who, because of his or her relation to the victim, is justifiably assumed by the victim to be one who will not act in a manner that is inconsistent with the victim's welfare.
The defense of misrepresentation focuses on dishonesty in bargaining. A misrepresentation may be: 1) a false statement of fact, 2) the deliberate withholding of information which a party has a duty to disclose, or 3) an action that conceals a fact (for example, painting over water damage when selling a house).
Will Your Contract Be Enforced Under the Law?
If you are involved in a business agreement, one of the first things to determine is whether the promise or agreement at issue will be considered an enforceable contract under the law. While contracts usually involve promises to do something (or refrain from doing something), not all promises are contracts. How does the law determine which promises are enforceable contracts and which are not?
Is the Agreement a Contract?
Courts look at a number of factors to determine whether an agreement should be enforced. The court must initially determine whether the agreement constitutes a contract or not. In order for an agreement to be considered a valid contract, it must satisfy certain requirements. One party must make an offer and the other party must accept it. There must be a bargained for exchange of promises, meaning that something of value must be given in return for a promise. In addition, the terms of a contract must be sufficiently definite for a court to enforce them.
Enforcement and Contract Defenses
If a court determines that a contract exists, it next must decide whether that contract should be enforced. There are a number of reasons why a court might not enforce a contract. These are called defenses to the contract. Contract defenses are designed to protect people from unfairness in the bargaining process, or in the substance of the contract itself. If there is a valid defense to a contract, the contract may be voidable, meaning the party to the contract who was the victim of the unfairness may be able to cancel or revoke the contract. In some instances, the unfairness is so extreme that the contract is considered void, in other words, a court will declare that no contract was ever formed. What are some of the reasons a court might refuse to enforce a contract?
Contract Defenses: Capacity to Contract
In order to be bound by a contract, a person must have the legal ability to form a contract in the first place. This legal ability is called capacity to contract. A person who is unable, due to age or mental impairment, to understand what she is doing when she signs a contract may lack capacity to contract. For example, a person under legal guardianship due to a mental defect completely lacks the capacity to contract. Any contract signed by that person is void. In other situations, a person may not completely lack the capacity to contract. The contract would then be voidable at the option of the party claiming incapacity, if he or she is able to prove the incapacity.
Is the Agreement a Contract?
Courts look at a number of factors to determine whether an agreement should be enforced. The court must initially determine whether the agreement constitutes a contract or not. In order for an agreement to be considered a valid contract, it must satisfy certain requirements. One party must make an offer and the other party must accept it. There must be a bargained for exchange of promises, meaning that something of value must be given in return for a promise. In addition, the terms of a contract must be sufficiently definite for a court to enforce them.
Enforcement and Contract Defenses
If a court determines that a contract exists, it next must decide whether that contract should be enforced. There are a number of reasons why a court might not enforce a contract. These are called defenses to the contract. Contract defenses are designed to protect people from unfairness in the bargaining process, or in the substance of the contract itself. If there is a valid defense to a contract, the contract may be voidable, meaning the party to the contract who was the victim of the unfairness may be able to cancel or revoke the contract. In some instances, the unfairness is so extreme that the contract is considered void, in other words, a court will declare that no contract was ever formed. What are some of the reasons a court might refuse to enforce a contract?
Contract Defenses: Capacity to Contract
In order to be bound by a contract, a person must have the legal ability to form a contract in the first place. This legal ability is called capacity to contract. A person who is unable, due to age or mental impairment, to understand what she is doing when she signs a contract may lack capacity to contract. For example, a person under legal guardianship due to a mental defect completely lacks the capacity to contract. Any contract signed by that person is void. In other situations, a person may not completely lack the capacity to contract. The contract would then be voidable at the option of the party claiming incapacity, if he or she is able to prove the incapacity.
Keeping Your Contracts Simple -- and Enforceable
For most contracts, legalese is not essential or even helpful. On the contrary, contractual agreements are best expressed in simple, everyday English.
Although lots of contracts are filled with mind-bending legal gibberish, there's no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll want to put into a written contract are best expressed in simple, everyday English.
All that is necessary for most contracts to be legally valid are the following two elements:
All parties are in agreement (after an offer has been made by one party and accepted by the other).
Something of value has been exchanged, such as cash, services, or goods (or a promise to exchange such an item) for something else of value.
In a few situations, a contract must also be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last more than one year. You'll need to check your state's laws to determine exactly which contracts must legally be in writing. Of course, it is wise to write out most business agreements, even if not legally required, because oral contracts can be difficult or impossible to prove.
Let's look a bit more closely at the two elements necessary for a valid contract: agreement between the parties and exchange of things of value.
1. Agreement Between Parties (a.k.a. Offer and Acceptance)
Although it may seem like stating the obvious, an essential element of a valid contract is that all parties really do agree on all major issues. In real life, there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.
The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing.
Let's say, for instance, you're shopping around for a print shop to produce brochures for your business. One printer says (or faxes) that he'll print 5,000 two-color flyers for $200. This constitutes his offer. If you tell him to go ahead with the job, you've accepted his offer. In the eyes of the law, when you tell the printer to go ahead, you create a contract, which means you're liable for your side of the bargain (in this case, the payment of $200). But if you tell the printer you're not sure and want to continue shopping around (or don't even respond, for that matter), you clearly haven't accepted the offer, and no agreement has been reached. Or if you say the offer sounds great, except that you want the printer to use three colors instead of two, no contract has been made, since you have not accepted all of the important terms of the offer. You have actually changed one term of the offer. (Depending on your wording, you have probably made a counteroffer, which is discussed below.)
In day-to-day business, the seemingly simple steps of offer and acceptance can become quite convoluted. For instance, sometimes when you make an offer it isn't quickly and unequivocally accepted; the other party may want to think about it for a while or try to get a better deal. And before the other party accepts your offer, you might change your mind and want to withdraw or amend your offer. Delaying acceptance of an offer and revoking an offer, as well as making a counteroffer, are common situations in business transactions that often lead to confusion and conflict. To minimize the potential for a dispute, here are some general rules you should understand and follow.
How Long an Offer Stays Open
Unless an offer includes a stated expiration date, it remains open for a "reasonable" time. What's reasonable, of course, is open to interpretation and will vary depending on the type of business and the particular fact situation.
To leave no room for doubt as to when the other party must make a decision, the best way to make an offer is to include an expiration date.
If you want to accept someone else's offer, the best approach is to do it as soon as possible, while there's no doubt that the offer is still open. Keep in mind that until you accept, the person or company who made the offer -- called the offeror -- may revoke the offer.
Revoking an Offer
Whoever makes an offer can revoke it as long as it hasn't yet been accepted. This means if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer. Once the other party accepts, however, you'll have a binding agreement. Revocation must happen before acceptance.
An exception to this rule occurs if the parties agree that the offer will remain open for a stated period of time.
Offers With Expiration Dates
An offer with an expiration date is called an option, and it usually doesn't come for free. Say someone offers to sell you a forklift for $10,000, and you want to think the offer over without worrying that the seller will withdraw the offer or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time, say thirty days. Often, however, the seller will ask you to pay for this 30-day option -- which is understandable, since during the 30-day option period the seller can't sell to anyone else.
Payment or no payment, when an option agreement exists, the offeror cannot revoke the offer until the time period ends.
Counteroffers
Often, when an offer is made, the response will be to start bargaining. Of course, haggling over price is the most common type of negotiating that occurs in business situations. When one party responds to an offer by proposing something different, this proposal is called a "counteroffer." When a counteroffer is made, the legal responsibility to accept, decline or make another counteroffer shifts to the original offeror.
For instance, suppose your printer (here, the original offeror) offers to print 5,000 brochures for $300, and you respond by saying you'll pay $250 for the job. You have not accepted his offer (no contract has been formed) but instead have made a counteroffer. If your printer then agrees to do the job exactly as you have specified, for $250, he's accepted your counteroffer, and a legal agreement has been reached.
While it's true that a contract is formed only if the accepting party agrees to all substantial terms of an offer, this doesn't mean you can rely on inconsequential differences to void a contract later. For example, if you offer to buy 100 chicken sandwiches on one-inch-thick sourdough bread, there is no contract if the other party replies she will provide 100 emu filets on rye bread. But if she agrees to provide the chicken sandwiches on one-inch-thick sourdough bread, a valid contract exists, and you can't later refuse to pay if the bread turns out to be a hair thicker or thinner than one inch.
2. Exchange of Things of Value
In addition to both parties' agreement to the terms, a contract isn't valid unless both parties exchange something of value, in anticipation of the completion of the contract. The "thing of value" being exchanged -- which every law student who ever lived has been taught to call "consideration" -- is most often a promise to do something in the future, such as a promise to perform a certain job or a promise to pay a fee for a job. For instance, let's return to the example of the print job. Once you and the printer agree on terms, there is an exchange of things of value (consideration): the printer has promised to print the 5,000 brochures and you have promised to pay $250 for them.
The main importance of requiring things of value to be exchanged is to differentiate a contract from a generous statement or a one-sided promise, neither of which are enforceable by law. If a friend offers you a gift without asking anything in return -- for instance, such as offering to stop by and help you move a pile of rocks -- the arrangement wouldn't count as a contract because you didn't give or promise your friend anything of value. If your friend never followed through with her gift, you would not be able to enforce her promise. However, if you promise your friend you'll help her weed her vegetable garden on Sunday, in exchange for her helping you move rocks on Saturday, a contract exists.
Although the exchange-of-value requirement is met in most business transactions by an exchange of promises ("I'll promise to pay money if you promise to paint my building next month"), actually doing the work can also satisfy the rule. If, for instance, you leave your printer a voice-mail message that you'll pay an extra $100 if your brochures are cut and stapled when you pick them up, the printer can create a binding contract by actually doing the cutting and stapling. And once he does so, you can't weasel out of the deal by claiming you changed your mind.
Although lots of contracts are filled with mind-bending legal gibberish, there's no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll want to put into a written contract are best expressed in simple, everyday English.
All that is necessary for most contracts to be legally valid are the following two elements:
All parties are in agreement (after an offer has been made by one party and accepted by the other).
Something of value has been exchanged, such as cash, services, or goods (or a promise to exchange such an item) for something else of value.
In a few situations, a contract must also be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last more than one year. You'll need to check your state's laws to determine exactly which contracts must legally be in writing. Of course, it is wise to write out most business agreements, even if not legally required, because oral contracts can be difficult or impossible to prove.
Let's look a bit more closely at the two elements necessary for a valid contract: agreement between the parties and exchange of things of value.
1. Agreement Between Parties (a.k.a. Offer and Acceptance)
Although it may seem like stating the obvious, an essential element of a valid contract is that all parties really do agree on all major issues. In real life, there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.
The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing.
Let's say, for instance, you're shopping around for a print shop to produce brochures for your business. One printer says (or faxes) that he'll print 5,000 two-color flyers for $200. This constitutes his offer. If you tell him to go ahead with the job, you've accepted his offer. In the eyes of the law, when you tell the printer to go ahead, you create a contract, which means you're liable for your side of the bargain (in this case, the payment of $200). But if you tell the printer you're not sure and want to continue shopping around (or don't even respond, for that matter), you clearly haven't accepted the offer, and no agreement has been reached. Or if you say the offer sounds great, except that you want the printer to use three colors instead of two, no contract has been made, since you have not accepted all of the important terms of the offer. You have actually changed one term of the offer. (Depending on your wording, you have probably made a counteroffer, which is discussed below.)
In day-to-day business, the seemingly simple steps of offer and acceptance can become quite convoluted. For instance, sometimes when you make an offer it isn't quickly and unequivocally accepted; the other party may want to think about it for a while or try to get a better deal. And before the other party accepts your offer, you might change your mind and want to withdraw or amend your offer. Delaying acceptance of an offer and revoking an offer, as well as making a counteroffer, are common situations in business transactions that often lead to confusion and conflict. To minimize the potential for a dispute, here are some general rules you should understand and follow.
How Long an Offer Stays Open
Unless an offer includes a stated expiration date, it remains open for a "reasonable" time. What's reasonable, of course, is open to interpretation and will vary depending on the type of business and the particular fact situation.
To leave no room for doubt as to when the other party must make a decision, the best way to make an offer is to include an expiration date.
If you want to accept someone else's offer, the best approach is to do it as soon as possible, while there's no doubt that the offer is still open. Keep in mind that until you accept, the person or company who made the offer -- called the offeror -- may revoke the offer.
Revoking an Offer
Whoever makes an offer can revoke it as long as it hasn't yet been accepted. This means if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer. Once the other party accepts, however, you'll have a binding agreement. Revocation must happen before acceptance.
An exception to this rule occurs if the parties agree that the offer will remain open for a stated period of time.
Offers With Expiration Dates
An offer with an expiration date is called an option, and it usually doesn't come for free. Say someone offers to sell you a forklift for $10,000, and you want to think the offer over without worrying that the seller will withdraw the offer or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time, say thirty days. Often, however, the seller will ask you to pay for this 30-day option -- which is understandable, since during the 30-day option period the seller can't sell to anyone else.
Payment or no payment, when an option agreement exists, the offeror cannot revoke the offer until the time period ends.
Counteroffers
Often, when an offer is made, the response will be to start bargaining. Of course, haggling over price is the most common type of negotiating that occurs in business situations. When one party responds to an offer by proposing something different, this proposal is called a "counteroffer." When a counteroffer is made, the legal responsibility to accept, decline or make another counteroffer shifts to the original offeror.
For instance, suppose your printer (here, the original offeror) offers to print 5,000 brochures for $300, and you respond by saying you'll pay $250 for the job. You have not accepted his offer (no contract has been formed) but instead have made a counteroffer. If your printer then agrees to do the job exactly as you have specified, for $250, he's accepted your counteroffer, and a legal agreement has been reached.
While it's true that a contract is formed only if the accepting party agrees to all substantial terms of an offer, this doesn't mean you can rely on inconsequential differences to void a contract later. For example, if you offer to buy 100 chicken sandwiches on one-inch-thick sourdough bread, there is no contract if the other party replies she will provide 100 emu filets on rye bread. But if she agrees to provide the chicken sandwiches on one-inch-thick sourdough bread, a valid contract exists, and you can't later refuse to pay if the bread turns out to be a hair thicker or thinner than one inch.
2. Exchange of Things of Value
In addition to both parties' agreement to the terms, a contract isn't valid unless both parties exchange something of value, in anticipation of the completion of the contract. The "thing of value" being exchanged -- which every law student who ever lived has been taught to call "consideration" -- is most often a promise to do something in the future, such as a promise to perform a certain job or a promise to pay a fee for a job. For instance, let's return to the example of the print job. Once you and the printer agree on terms, there is an exchange of things of value (consideration): the printer has promised to print the 5,000 brochures and you have promised to pay $250 for them.
The main importance of requiring things of value to be exchanged is to differentiate a contract from a generous statement or a one-sided promise, neither of which are enforceable by law. If a friend offers you a gift without asking anything in return -- for instance, such as offering to stop by and help you move a pile of rocks -- the arrangement wouldn't count as a contract because you didn't give or promise your friend anything of value. If your friend never followed through with her gift, you would not be able to enforce her promise. However, if you promise your friend you'll help her weed her vegetable garden on Sunday, in exchange for her helping you move rocks on Saturday, a contract exists.
Although the exchange-of-value requirement is met in most business transactions by an exchange of promises ("I'll promise to pay money if you promise to paint my building next month"), actually doing the work can also satisfy the rule. If, for instance, you leave your printer a voice-mail message that you'll pay an extra $100 if your brochures are cut and stapled when you pick them up, the printer can create a binding contract by actually doing the cutting and stapling. And once he does so, you can't weasel out of the deal by claiming you changed your mind.
Lessons Learned the Hard Way: Business Contracts
We've all heard the saying that "an ounce of prevention is worth a pound of cure." Those words are particularly apt in the context of business contracts, where careful consideration at the outset can prevent major headaches in the long run. Being sued for breach, or suing another party on the same basis, is expensive, time-consuming, and energy-depleting. Most contract disputes could be avoided, however, if the parties took the time to make their intentions and expectations clear to each other from the start.
Take for example the case involving a food buyer who ordered more than 200 tons of chicken, expecting to receive young chickens suitable for broiling and frying. When the chicken arrived, it was actually older, stewing chicken, and the disappointed buyer sued. The court was called upon to decide what reasonable parties would have meant by the use of the term "chicken."
After listening to the testimony of several experts, the court concluded that the use of the more generic reference in the contract did not entitle the buyer to a particular type or grade of chicken. The experts had explained that people in the trade typically specify the kind of chicken they intend to buy and sell. Accordingly, in that case, the seller won, but only after protracted litigation. Both the buyer and the seller could have saved themselves a lot of aggravation by being more specific in the contract.
In another case, a crop grower and a food processing company entered into a contract whereby the food processing company agreed to harvest hundreds of acres of vegetables grown by the crop grower, except in the case of "adverse weather conditions." The crops had been planted at staggered intervals so that not all harvesting would have to take place at the same time. The weather that year was unseasonably cool early in the season, but it suddenly became warm and sunny, causing all of the crops to mature at once. The food processing company could not harvest all of the crops simultaneously, and the grower sued for breach. The processor argued that it was off the hook based on the "adverse weather conditions" clause, and the court agreed. Although the weather had been what many would deem ideal, and it was probably not what the crop grower had envisioned as "adverse weather," it was not perfect weather for harvesters. Thus, the contract language did in fact excuse the processor's lack of performance.
These cases illustrate the importance of clarifying contract language before signing on the dotted line. Make sure that you and the other party agree about the meaning of any potentially ambiguous words or phrases. Even a misplaced (or unnoticed) punctuation mark can dramatically change the scope of your rights and obligations under a contract. Watch also for commonly misused words. When you agree to bimonthly payments, for instance, do you understand that you will be paid every other month? Or will you expect to be paid twice a month -- semi-monthly?
Because so much is at stake, the safest and most prudent course of action is to have an attorney experienced in contract law review and approve all agreements before you sign them. It may require a little extra time and money at the outset, but those expenditures pale in comparison to what you stand to lose in a full-blown contract dispute.
Take for example the case involving a food buyer who ordered more than 200 tons of chicken, expecting to receive young chickens suitable for broiling and frying. When the chicken arrived, it was actually older, stewing chicken, and the disappointed buyer sued. The court was called upon to decide what reasonable parties would have meant by the use of the term "chicken."
After listening to the testimony of several experts, the court concluded that the use of the more generic reference in the contract did not entitle the buyer to a particular type or grade of chicken. The experts had explained that people in the trade typically specify the kind of chicken they intend to buy and sell. Accordingly, in that case, the seller won, but only after protracted litigation. Both the buyer and the seller could have saved themselves a lot of aggravation by being more specific in the contract.
In another case, a crop grower and a food processing company entered into a contract whereby the food processing company agreed to harvest hundreds of acres of vegetables grown by the crop grower, except in the case of "adverse weather conditions." The crops had been planted at staggered intervals so that not all harvesting would have to take place at the same time. The weather that year was unseasonably cool early in the season, but it suddenly became warm and sunny, causing all of the crops to mature at once. The food processing company could not harvest all of the crops simultaneously, and the grower sued for breach. The processor argued that it was off the hook based on the "adverse weather conditions" clause, and the court agreed. Although the weather had been what many would deem ideal, and it was probably not what the crop grower had envisioned as "adverse weather," it was not perfect weather for harvesters. Thus, the contract language did in fact excuse the processor's lack of performance.
These cases illustrate the importance of clarifying contract language before signing on the dotted line. Make sure that you and the other party agree about the meaning of any potentially ambiguous words or phrases. Even a misplaced (or unnoticed) punctuation mark can dramatically change the scope of your rights and obligations under a contract. Watch also for commonly misused words. When you agree to bimonthly payments, for instance, do you understand that you will be paid every other month? Or will you expect to be paid twice a month -- semi-monthly?
Because so much is at stake, the safest and most prudent course of action is to have an attorney experienced in contract law review and approve all agreements before you sign them. It may require a little extra time and money at the outset, but those expenditures pale in comparison to what you stand to lose in a full-blown contract dispute.
Checklist: Contract Terms
Although all contracts can be somewhat different, there are certain contract terms that are among the most commonly included in business contracts. Not all of these provisions will be included in every contract, and most contracts will include additional provisions that relate specifically to their particular subject matter. The following checklist is, however, a basic and general guide as to what provisions it may be important to include, or at least consider, in the business contracts that you enter into.
Identity of the parties
Individuals or business entities?
If businesses, what type? (partnership, corporation, etc.)
Name of person signing on behalf of the business
Signer's official title
Does he or she have authority to bind the business?
Addresses of the parties
Purpose(s) of the contract
Underlying assumptions
Contract terms
In general
Duties of each party
Rights of each party
Relevant dates
Relevant prices or other dollar amounts
Relevant quantities
Payment terms
Lump sum, COD, installments?
Payment due dates
Taxes
Interest
Late fees
Warranties
Disclaimers
Limitations on liability
Liquidated damages
Confidentiality provision
Indemnification agreement
Default
Arbitration clause
Governing law
Venue of lawsuits involving the contract
Statement that contract constitutes entire agreement
Severability of individual provisions
Signatures of authorized signatories
Notarization
Identity of the parties
Individuals or business entities?
If businesses, what type? (partnership, corporation, etc.)
Name of person signing on behalf of the business
Signer's official title
Does he or she have authority to bind the business?
Addresses of the parties
Purpose(s) of the contract
Underlying assumptions
Contract terms
In general
Duties of each party
Rights of each party
Relevant dates
Relevant prices or other dollar amounts
Relevant quantities
Payment terms
Lump sum, COD, installments?
Payment due dates
Taxes
Interest
Late fees
Warranties
Disclaimers
Limitations on liability
Liquidated damages
Confidentiality provision
Indemnification agreement
Default
Arbitration clause
Governing law
Venue of lawsuits involving the contract
Statement that contract constitutes entire agreement
Severability of individual provisions
Signatures of authorized signatories
Notarization
Commonly Confused Contract Terms
When drafting a contract, care must be taken to use exactly the right words to convey the desired meaning. The following chart illustrates how easily certain words can be confused or misused, and if you don't read over a contract very carefully, these common mistakes can be easy to miss. This list is by no means exhaustive, but it should help alert you to some common errors and keep you on your toes in order to catch others.
WORD: MEANING
CAN BE CONFUSED WITH: MEANING
Affect: To alter, influence, or change
Effect: A result, or to bring about change
Alternate: A substitute or second choice, or to take turns
Alternative: One choice among various options
Among: Occurring in a group of three or more
Between: Occurring in a set of two
Assure: To convince
Insure: To guard against loss
Assure: To convince
Ensure: To make certain
Bimonthly: Every other month
Semimonthly: Twice a month
Biweekly: Every other week
Semiweekly: Twice a week
Capital: City that is the seat of local government, or relating to money, or an uppercase letter
Capitol: The building in which the legislature meets
Continual: Intermittent or repeated at intervals
Continuous: Without interruption
Discreet: Prudent or cautious
Discrete: Separate or detached
Eminent: High in rank
Imminent: About to occur
Farther: Greater distance
Further: Greater degree, time, or quantity
Fewer: A smaller number of units
Less: A smaller quantity
i.e.: That is
e.g.: For example
Imply: To suggest
Infer: To conclude
Its: Belonging to it
It's: It is
Mean: The number obtained by adding all values together and dividing by the number of values
Median: The value that falls in the middle of all of the recorded values, with an equal number of values above and below it
Practical: Useful in actual practice
Practicable: Capable of being put into practice
Principal: Head or chief
Principle: A basic truth or assumption
Stationary: Fixed or immovable
Stationery: Writing materials
WORD: MEANING
CAN BE CONFUSED WITH: MEANING
Affect: To alter, influence, or change
Effect: A result, or to bring about change
Alternate: A substitute or second choice, or to take turns
Alternative: One choice among various options
Among: Occurring in a group of three or more
Between: Occurring in a set of two
Assure: To convince
Insure: To guard against loss
Assure: To convince
Ensure: To make certain
Bimonthly: Every other month
Semimonthly: Twice a month
Biweekly: Every other week
Semiweekly: Twice a week
Capital: City that is the seat of local government, or relating to money, or an uppercase letter
Capitol: The building in which the legislature meets
Continual: Intermittent or repeated at intervals
Continuous: Without interruption
Discreet: Prudent or cautious
Discrete: Separate or detached
Eminent: High in rank
Imminent: About to occur
Farther: Greater distance
Further: Greater degree, time, or quantity
Fewer: A smaller number of units
Less: A smaller quantity
i.e.: That is
e.g.: For example
Imply: To suggest
Infer: To conclude
Its: Belonging to it
It's: It is
Mean: The number obtained by adding all values together and dividing by the number of values
Median: The value that falls in the middle of all of the recorded values, with an equal number of values above and below it
Practical: Useful in actual practice
Practicable: Capable of being put into practice
Principal: Head or chief
Principle: A basic truth or assumption
Stationary: Fixed or immovable
Stationery: Writing materials
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