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Business Contract Drafting and Review

February.18.2012

Properly drafted commercial contracts not only improve the professional appearance of your business, but may also determine whether your contracts can be enforced in court or whether you can avoid court altogether.  For various motivations, some people attempt to create their own contracts or recycle agreements they somehow came across.  A company not relying upon an attorney to draft or review their contracts will be rolling dice both on their contracts’ appropriateness and enforceability.  

A contract with a professional appearance lends credibility to your business.  You should not be surprised that your potential client’s likely have read hundreds of contracts themselves or that they use attorneys to review contracts for them.  Shoddy contract drafting can be very evident to even unsophisticated customers.  Presenting an error-filled unprofessional contract is hardly the best way to begin a new business relationship.  Further, if your counterpart’s attorney spots any holes in your self-created contract, he is under no obligation to point out those errors to you.  Hence, your contracts may be binding upon you and your business, but may not be binding upon the other party if, for instance, they decide to simply walk away half-way through the contract.

While legal writing may sometimes be difficult to read, the attorney is often using language with very specific meanings in court.  The “simplification” of legal contract language has landed many people in long court battles where the parties try to convince the court of a word’s meaning.  Let your attorneys draft the contract in legal language that other attorneys and judges readily understand so they do not feel the urge to let a court contrive the contract’s meaning.

If the attorney will only be reviewing the contract, he should be able to spot those seemingly harmless provisions that may have tremendous consequences.  For instance, contract language may choose the laws of a particular state to apply or the court jurisdiction where claims for breaching the contract would need to be filed.  Not only could you be forced into using the laws of a state that may be unfavorable to your position, but you could also be forced to file in an unfriendly court but it may be geographically inconvenient as well.  Hiring an attorney to review your contracts will allow you to know whether seemingly harmless provisions are potential pitfalls.

The most dangerous provisions in the contract will usually be its liability clauses.  Let’s say you have an electrical installation company and will be installing a $2,000 electrical panel.  If the contract you agree to makes you liable for any damages that may or may not be directly related to your installation, your company could be bankrupt if the panel fails and damages an expensive piece of equipment or shuts down the business for a few weeks. Obviously, the potential liability far exceeds any income you could ever earn from your contract.  Your contracts’ liability clauses should reflect that you cannot necessarily control the quality of the products you install and should limit your potential liability from indirect damages, such as business loss.  Your attorney will hopefully recognize and steer you away from such landmines.

Other common contract issues can be found in the remedies allowed under the contract in case the other party breaches the contract.  For instance, it is not uncommon for business contracts to require one party to continue providing services even if the relationship between the parties has substantially deteriorated, sometimes even when payments for the services have stopped altogether.  Very few businesses can survive for long under such circumstances.

Do not assume your small business cannot negotiate with larger corporations on contract matters.  Often those corporations’ legal departments draft contracts that stretch the limit in their favor.  They realize that many of these provisions may be overkill and can be cut without affecting the overall effectiveness or enforceability of their contract.  No matter how large the company, you may be able to negotiate away most overly burdensome contract provisions.

While time is always a concern in business, any commercial contract that can affect the bottom-line deserves a call to an attorney experienced in contract review.

For additional information or to discuss your company’s business contracts, please contact Jeff Rogyom at (410) 929-4578.  Please review the Disclaimer page regarding use of this website and its information.

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