READ THE CONTRACT[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]by Noel Bagwell
for Executive Legal Professionals, PLLC
January 5, 2015
Reading the Contract Before Signing Is Essential
The most patently obvious, fundamental, essential advice I can give you is this: Before signing any contract, read it.
Contracts–especially written contracts–matter, because they perform at least three essential functions. “The most obvious function of a legal formality,” such as a written contract, “is . . . of providing ‘evidence of the existence and purport of the contract, in case of controversy.'” Fuller, Consideration and Form, 41 Colum. L. Rev. 799, 800-802, 806 (1941). The “Cautionary Function” and the “Channeling Function” are also important functions written contracts perform. The former is “a cautionary or deterrent function . . . acting as a check against inconsiderate action;” the latter is best understood as forcing “the raw material of meaning into defined and recognizable channels” and reducing “the fleeting entities of wordless thought to the patterns of conventional speech.” Fuller.
When one neglects to read a contract before signing it, he robs himself of at least two of these benefits. When you forego reading a contract, you rob yourself of the confidence which attends the knowledge of the specific terms of the deal, because such knowledge can only come result from effective ex ante performance of the channeling function of the contract. The contract cannot effectively perform this function if you do not read it. A contract cannot effectively deter reckless, unthinking action if you fail to read it; you should pause and reflect upon the terms of the agreement (which you can only do if you read and understand the contract), and ask yourself one final time, before signing, whether entering into a legally binding agreement is the best course of action under the circumstances.[/fusion_text][fusion_text]
5 Tips for Reading Contracts Before Signing
One of the major problems we see in badly written contracts relates to definitions–or, rather, the lack thereof. Do not assume you know what every term in the contract means. Essential terms, especially, may require definition. Including a Definitions section in the contract is usually a good idea in a contract of any length. The Definitions section defines each term to the contract the meaning of which the parties might reasonably foresee having a disagreement.
Do not assume you know what you think you know. You might be inclined to pretend all your assumptions are correct and not ask for clarification about potentially ambiguous contract terms. Maybe you are afraid admitting you aren’t 100% clear about the meaning of some provision could make you appear inexperienced, intractable, or unintelligent. When considering whether to enter into a written contract, put aside considerations of appearances, and ensure you have a clear, unambiguous understanding of the contract’s terms.
What should be included in the contract, but has not been included? Answering this question can be difficult. Answering the question thoroughly is, however, essential to any well-written contract. If any provision of a contract raises a question, answer the question with a clearly written contract provision. Also, be sure provisions are included that describe how and when notice of important contract events is to be given. Do not be afraid to postpone signing a contract until all the relevant terms are added.
Nothing is final until the parties sign on the dotted line–the event which signals the proverbial singing fat lady. Sometimes, even then, a contract’s terms can be changed, if both parties have adequate incentives for doing so. Do not ignore that “if!” Do not simply sign on the dotted line, however, and later try to fix whatever you don’t like; such behavior is not only bad business etiquette, but can cause potentially expensive legal conflicts. Instead, ensure the deal into which you are entering when you sign the contract is the deal you want. If you do not want to enter into the deal as it is written, then do not sign the contract. Ask for the things you want; business is not for the timid. The worst the other party can say is, “No.”
Have your lawyer review the contract. What if you are signing a contract between your lawyer and you? Have a different lawyer review that contract! Even professionals who regularly do business involving written contracts need a lawyer to review contracts. Each deal is different, unique to the parties and the circumstances of the deal. As such, each contract should be uniquely tailored to the incentives of those parties and the particular aspects of the deal. This means few, if any, “boilerplate” contracts are going to effectively meet the needs of the parties in a given deal. Either a custom or customized contract will better serve the needs of the parties than a boilerplate contract (or modified template contract). To ensure such a contract is properly custom-drafted or customized, a lawyer should review the final document before the parties sign.
Ignore At Your Peril This Obvious, Easy, Free Advice
This legal advice may seem obvious; following the advice is easy and costs you nothing. Why, then, do so many people fail to simply read contracts before signing them? Anecdotally, I suggest two of the most prominent reasons are laziness and impatience. Instead of condemning those qualities, however, let me appeal to them. After all, we all value our time, and what one person perceives as impatience to another may seem a time-saving efficiency. What one person perceives as laziness to another may seem an effective shortcut.
Which is quicker: taking a few minutes–or even hours–to read and fully understand a contract before signing it, or getting involved in a contract dispute over the terms you neglected to read? Which is easier: making the effort required to read and understand a contract before signing it, or fighting with the other party to the contract (or their lawyer) over misunderstandings, miscommunications, or even breaches of contract? I suggest it is both easier and quicker to just read and come to a mutual understanding of the terms of a contract before signing, than to risk a contract dispute.
So, next time you’re faced with a few pages of a contract and asked to sign on the dotted line, what are you going to do? I hope you will read it! If you can’t be bothered to read it, yourself, at least send it to us, and let us review it for you, for a reasonable fee, to make sure you don’t get involved in a deal you will later regret.
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