Dense legal text is foisted upon you every time you want to download software, start a membership, or take just about any action where money is changing hands. So it’s easy to get in the habit of skipping over the fine print. However, it’s wise to pick out a few important aspects to identify and understand with any contract you agree to.
The parties to a contract are the people or organizations responsible for upholding the agreement. Your name is supposed to in the contract, of course, but pay special attention to the other party. Is it the person or organization you’ve been dealing with? If not, why is that? Also make sure the contract can’t be assigned to another entity without your consent.
This may sound like an obvious one, but make sure the pricing you agreed to is clearly stated in the paperwork. You don’t want a situation in which you verbally agreed to one price and then found out later the numbers in the contract were different.
Rights and duties
Simply stated, what are you expected to give and what are you expected to get? This is an area where a little ambiguity can mean a big headache.
It’s all well and good to have an agreement for what’s going to happen and how it is going to happen, but it’s important to be up front about WHEN they are going to take place.
What is considered default on the contract: if payment is one second past due, or 30 days late? What kind of service or product is judged to be unacceptable?
When is the contract scheduled to end? What right do you have to terminate the contract early? Are there conditions under which the contract would automatically end? Does the contract automatically renew after a certain period?
Contract disagreements are resolved through mediation, arbitration or litigation. Keep in mind that mediation in general is non-binding. With arbitration, you may not be able to demand information from the other party to build your case. Litigation is likely your best avenue for being made whole.
In a perfect world, contracts would always be honored. In the real world, though, one party sometimes isn’t able to live up to their end of the deal. With any financial decision, it can be helpful to weigh what would happen in the worst-case scenario. It’s no different with signing a contract. Make sure you won’t be penalized too heavily should you need to break the agreement. Additionally, make sure there is enough incentive for the other party to not simply walk away from the deal.
Keep in mind that contracts can be very complex and that if you aren’t experienced in reviewing them, you shouldn’t expect to always understand everything contained within. Enlist the help of an attorney if you feel overwhelmed by the technical language of a proposed contract.