What To Look For In A Contract

What To Look For In A Contract

Many times, I get phone calls from clients asking me to prepare a contract, based on a few basic facts: an agreement to buy a new product, set up a partnership, enter into a new lease.  The details are usually short and sweet, but the contract is not.  Why?

A contract is an agreement to set up an amicable and profitable arrangement between two parties, but also a document that is intended to protect the parties when things go wrong.  Really, a written contract is not even needed if things go well.  No, the reason a contract exists is because things may go wrong, the parties begin to argue, the deal does not go as planned.

What I need from you – what any lawyer needs – is for you to think long and hard about what could go wrong.  In a contract for the sale of goods, what happens if the merchandise is defective?  Is there a warranty?  In a lease, what happens if the leasing party wants out of the lease?  What happens if the leased premises isn’t what was promised?  Perhaps the most important question is who pays for the costs of a default: who pays to ship a defective product back to its source?  Who pays to restore the premises to its original condition?  Is there an attorneys’ fees clause, so that the defaulting party has to cover the other party’s costs and fees?

There are as many possible default scenarios as stars in the sky.   In a contract for machined parts, there could be issues over the suitability of the part; the failure of the ordering party to provide proper specifications; failure of design or materials; and countless other issues.  In a simple real estate lease, there could be questions over the suitability of the premises, the length of the lease, default due to failure of the business, default due to the economy, and many other problems.

Only you – as the expert in your business – can predict what might go wrong.  Your examination of the potential problems with your contract is more important that the details of the deal you are trying to memorialize.  Think about what you want from your new partner, and then spend as much time (or more!) thinking about what could go wrong.

Write these ideas down.  Your lawyer may not use all of your ideas, but this is critical information that could protect you if and when a lawsuit is filed.  Think of a good contract as an insurance policy.  You never want to use it, but it should protect you if and when things go wrong.