The success of your business depends to a great extent
on the quality of the contracts you sign. A good contract protects everyone,
while a bad contract can mean disaster.
Every time you promise
to exchange services or property, you create a contract -- either written or
unwritten. Oral contracts present several problems. They can be ambiguous,
difficult to enforce and hard to prove in court.
Contracts are always
written to help eliminate potential disputes. They contain precise terms about
the people or companies involved, the property or services offered and of
course, the agreed-upon price. Contracts may also include clauses outlining the
terms of defaults, indemnities and exemptions.
Here are some important
issues to address with your attorney before you sign on the dotted line:
Put it in writing. If an
agreement is reached over the phone or in a meeting, write it down with both
parties signing as soon as possible. If that's not possible, an email
memorializing the terms of the agreement is the next best way to confirm an
oral agreement.
Like the terms. If the
proposed terms are unacceptable, make a counter offer prior to signing the
contract. You're the one who has to meet the obligations. Don't assume or rely
on oral assurances that the other party will not insist on strict compliance.
Make sure that the business deal makes economic sense.
Cover the bases. Include
all aspects of the understanding, and if the deal is based on an earlier verbal
agreement, be sure the written terms match. Include options, consequences, and
possibilities. Don't fail to address an issue because it's sensitive.
Keep it clear. If
you're unsure what the other party expects, don't use vague language to
camouflage it; this can lead to misunderstanding and lawsuits. Define ambiguous
terms in simple language and don't complicate things unnecessarily.
Be consistent. Legal
writing isn't creative writing. You don't want royalty in one paragraph, license fee in
another, and use fee in another.
Special Provisions
Duties and obligations. Include
a detailed description of the duties and obligations and the deadlines for
performance. If one party's obligation is, say, to create software for a
multimedia work, provide detailed specifications.
Representations and warranties. A
warranty is a legal promise that certain facts are true. Typical
representations or warranties concern issues such as ownership of goods and the
right to sell or assign them. In multimedia industry contracts, it's common to
find warranties of ownership of intellectual property rights and
non-infringement of third parties' intellectual property rights. For contracts
involving the sale of goods, certain warranties are implied under state law unless
specifically disclaimed.
Termination. This
ensures that either party can end the contract under certain circumstances.
Generally, termination clauses describe breach of contract events that trigger
the right to terminate. The provisions also describe how to give notice that you're going
to exercise the right, and whether the breaching party has an opportunity to
remedy the breach.
Remedies and arbitration. A
remedy clause outlines the non-breaching parties' rights when a contract is
violated. In sales contracts, remedy clauses are usually designed to limit the
seller's liability for damages.
An arbitration clause
states that disputes must be settled through arbitration rather than
litigation. It generally includes the name of an organization that will conduct
the arbitration (the American Arbitration Association, for example), the city
where it will be held, how arbitrators will be chosen, as well as who will bear
the cost.
Merger clause. A
merger clause helps prevent evidence outside the written document from being
admissible in court to contradict or supplement the terms of the written
agreement.
Choice of law. What law should be
followed? For example, if one party is in California and the other is in New
York, the contract should name which state law should be followed.
Contract law is a
complicated business. Consult with your attorney before signing documents that
obligate you to perform certain acts.
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