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Ten Considerations before Signing a Contract

Signing a contract is signing a legally binding agreement. Few tools are as powerful in the United States as contracts. Entering into a contract brings rights and duties that you didn’t have before. But the rights and duties are limited to the scope and subject matter of the contract. There are some important issues to consider before signing into an agreement. Be sure you know what you are getting into. If you need help understanding the terms of a contract, contact a business law attorney.

Anticipated Problems. If you can anticipate problems, then you should negotiate terms to address those problems. If the other party to the agreement has written the contract, be sure you are aware of any clauses that anticipate problems. The clauses the other party tries to include may force the responsibility on you to resolve problems.

Attorneys' Fees. The contract can include a provision that holds the breaching party liable for the attorneys’ fees of the non-breaching party.

Material Terms. The contract should be particularized and reflect the mutual understanding of the parties. If you have contracted to manufacture an item using specific parts, then the contract should indicate which specific parts or reasonable replacements must be used. If the terms of the agreement spell out the detailed requirements, then there will be fewer chances for dispute.

Mutual Agreement. Before you enter into an agreement, you should come to a mutual understanding of exactly what the terms of the agreement are. Make sure you agree with all of the terms of the agreement. If a dispute arises and you had misconceptions about what the contract says, a court may enforce the contract against you even if the terms are not what you wanted. At the same time, if the terms could not possibly reflect what the mutual understanding of the agreement likely was, then a court may allow you to breach the contract.

Payment Method. Determine the payment provisions and whether your income and accounting methods can accommodate. For instance, the agreement might require payment at the end of the month when the majority of your bills are due.

Payment Penalties. You should know if fees and service charges will be assessed if you are late with a payment. If penalties are unreasonable, then you should renegotiate or reconsider entering into the agreement.

Price. The contract should unambiguously state the price. Watch out for hidden charges. Discuss any fees or charges with the other party before you engage in the agreement. When you contract with a professional, you will likely be quoted an hourly rate that will not include costs like photocopying and postage. Understand what the additional fees and costs are and ask for an estimate.

Resolution of Anticipated Disputes. Despite painstaking care and strong working relationships, disputes arise. Contracts often include arbitration clauses, which require the parties to try to resolve disputes before going to court. Arbitration can be less expensive and less formal than court. If you sign a contract with an arbitration clause, you have likely waived the right to argue the dispute in court, at least until you have tried arbitration.

Time Frame. The contract should explicitly define due dates of any work that is to be performed in the future. If you are performing the services or delivering the goods, allow yourself enough time to complete the obligation. If you are receiving the goods or services, make certain the delivery schedule meets your needs. If the contract is for month-to-month services, do not sign an agreement that obligates you for a longer period.

Transaction Rules for Particular Industries. Different industries can have rules governing transactions. If the contract assumes the parties will comply with a specific procedure, but the contract does not explain the procedure, then you should not sign the contract unless you understand what may be required of you.

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