October Scene Magazine Article
Posted on | October 2, 2007 | No Comments
Contract Top 10
© 2007 Kevin E. Houchin
Contracts. Boring and complicated right? Many times yes. But, if you look at a contract as simply a document stating the solution to a mutual problem, like “I have a house that I need to rent or I lose money, and you need a place to live…” then they can be pretty interesting and straight-forward agreements. Remember that a contract is simply the statement of what your mutual promises to each other were when you came to agreement. The rest is easy if your remember these 10 rules.
10. Who?
Are you contracting with one person, a company, several people, several companies, or what? The document needs to identify the people in the game – specifically. It helps to note their form of entity (individual, LLC, corporation, etc.) right up front. I like to also give them a shorter more “normal” name right up front too, like “Kevin” instead of “Kevin Houchin, an individual with business address of…” because it makes the document easier to read than “landlord” or some other alias you normally find in a stock form agreement. If you’re not simply filling in the blanks, saying “Kevin will…” instead of “landlord will…” makes everything easier to follow for everyone.
9. What?
This is the meat of the agreement. What is each party going to do? You know what you promised, so make sure it’s well documented.
8. Where?
If a specific location is at issue, then include it. However, most of the time the “where” refers to where any dispute will be resolved. You generally want a dispute to be resolved in your home state (so you don’t have to pay to travel) using the laws of your home state (so you lawyer doesn’t have to spend as much time researching). Sometimes, it makes sense to have the location in your home state, but applying the law of another state, like California, New York, Delaware, or some other state where the law relative to your situation is better defined, or better for your side of the agreement.
7. When?
What are the deadlines? Is there one, or several? Again, make sure to document the agreement you’ve discussed and have in mind. Try to eliminate assumptions. Don’t just assume your customer/client understands an “industry standard.”
6. Why?
Most of the time the “why’s” aren’t binding and get included at the front of the agreement under a bunch of “whereas” statements. I like to use a bunch of these to set the stage for a smooth negotiation. For example, “Whereas X is a highly respected expert in Y industry…” set the stage for X to feel good about going into the details of the agreement. Buttering someone up a bit always helps because you DO catch more flys with honey.
5. How Much?
Again, be specific. Use flat rates or formulas. If there’s a formula involved, give an example of how something seemingly confusing is easily resolved through the formula. If you can’t figure it out now, you won’t be able to agree on it later.
4. How Often?
Lots of times people agree to contracts that pay them something like 10% of net receipts of widget XYZ. That’s fine, but how often are the payments made?
3. What if?
What if we decide this was a stupid deal and we hate each other? How do we get out? If we kill the deal, how much notice do we have to give. If someone has lied and we end up in court, do they have to pay our damages and costs (called an “indemnification” clause)?
2. Writing.
Verbal agreements are binding in most cases. The issue is proving the TERMS of the agreement. That’s what the writing is all about – proof. The writing doesn’t have to be in a special font, on white paper, notarized, or much of anything in most cases, so get SOMETHING down on paper and have the other person give some sort of written assent to the terms. An email will work in most cases. Just make sure you have some form of record that the person you’re agreeing with has agreed to the terms you expect. A formal, but unsigned document is NOT going to help much – in fact, an unsigned document might arguably prove that the other side did NOT agree to the term in dispute.
1. Purposeful Ambiguity.
“Purposeful Ambiguity” is a technique I use to get past a term in a deal that has a very low probability of happening, but could pooch the deal if we can’t get past it. The word to remember here is “reasonable” for instance, “Kevin will use reasonable efforts to sell the widgets.” This let’s us get going on the project, without arguing over something that we don’t need to fight over now. Granted, it’ll be the lawyers, judge, and/or jury defining what “reasonable” means, but that’s a risk we might be willing to take.
Contracts don’t have to be complex or difficult. They don’t even have to anticipate every detail. They just have to document the agreement so that all parties understand what’s on the other party’s mind.
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Kevin E. Houchin is principal of Houchin & Associates, PLLC – a copyright, trademark, arts & entertainment, business development, and branding firm located in Fort Collins, Colorado. To contact Kevin, call 970-493-1070 or email kevin.houchin@houchinlaw.com.