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biz ladies 09: contract law (do’s, don’ts, and more…)

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today’s final biz ladies post is the first of a series of posts we’ll be doing on contracts- one of the most requested topics lately. today business attorney jerry carleton of bullivant houser pailey PC will be sharing a fantastic primer on contract law, the do’s and don’ts of contracts, and an explanation of terms that you’re likely to see on your contracts. no matter where you are in your business, this is a must, must read.

also, since this is the first of many contract posts, we wanted to use this initial article as a jumping off point. what other topics would you like covered in the world of contracts? if you have any questions or comments just leave them below and we’ll shape our next contract posts after your requests.

thanks again to jerry for his hard work on this post!

CLICK HERE for the full post after the jump!

Contract Law Made Useful – Do’s, Don’ts, and Boilerplate.

Many of you have requested guidance on the topic of contract law, needing take-home bullet points of tips to keep in mind while entering contracts. Please know that this does NOT constitute legal advice, just a gathering of thoughts that I have found helpful over the years (starting with misconceptions and ending with terms to keep in mind as you enter a contract), and that I hope will help you too. To be safe, it’s always a good idea to consult with your lawyer before signing a contract.

Common misperceptions about contracts.

* You cannot make an oral contract. This is false – oral contracts are possible, and enforceable in many contexts. Whenever parties have an offer, acceptance, and consideration (meaning a party has acted, paid, incurred costs in some way, etc.), a contract is formed. However, proving the terms of an oral contract can be next to impossible, which is one reason why it’s better to reduce things to writing. Another reason is to make sure the parties have really agreed to the same thing. And even when you feel comfortable with the other party, and that you can trust them, GET IT IN WRITING.

* You cannot change the terms of a contract, your only choice is to sign, or not do a deal. You can always negotiate the terms of a contract, even if it looks like a final product or a form. Whoever presented the contract may not want you to edit the terms, but you should never feel forced to sign a contract “as-is” (and certainly DO NOT sign a contract if you haven’t read it or cannot live with its terms).

* Example contracts you find online must be good ones. This is particularly dangerous. While there are some good online materials that can provide you with self-help resources, there are many hideous contracts online, as well as contracts that may work for one situation, but not for yours.

Core terms – contracts may be short or long depending on the circumstances, but these are things to make sure you have covered.

* Who. Make clear who the contract is between. Especially for those of you who do business through an entity (and for those who don’t, many of you should probably have one for liability and/or tax reasons, but that’s a whole new topic for another day) – the entity should be entering the contract, not you individually. So, you should sign “XYZ, Inc., by: _______________” and not simply as an individual. And for design service related contracts, who will own the results of the design work?

* What. If the contract is for goods, what exactly is being purchased or sold? If for services, what exactly is being provided? And in either case, who determines when the result has been achieved? Generally speaking, the more detail, the better, to avoid confusion.

* When. Make sure to specify the timing involved. For example, when will the goods or services be provided? How long will the contract last? When will payment be received? And what happens if any of these timeframes are missed by one of the parties (usually a penalty of some kind, and it should be specified)?

* Where. Where will this contract be performed (especially for goods, will they be delivered as part of the deal)? And where will the contract be enforced if a legal battle ensues (i.e. venue and choice of law)?

* How much. A pretty critical term – how much will be paid, what are the payment terms, and are there any applicable discounts?

Boilerplate legal terms – “boilerplate” refers to fairly standard provisions from the legal standpoint, which are helpful if a dispute ever arises between the parties.

* Attorneys Fees. Enforcing a contract by suing the other party can be ridiculously expensive, and attorneys’ fees alone can make it economically impossible to sue the party in breach. Including a clause that says that the loser pays the winner’s attorney fees can alleviate that problem, and may also help to keep a party honest. For example, if one side can afford attorneys and knows that the other side can’t, the side who can afford the attorneys might feel empowered to breach the contract because they think the other side can’t pay for legal action against them.

* Limitation of Liability. If you are providing the goods or services, it’s good to agree what the damages will be if you fall short. For example, you can include a clause that the buyer’s total damages under all theories of liability will be limited to the money they have paid you (as the seller) under the contract.

* Severability. If one clause of the contract is determined to be unenforceable, you don’t want the whole agreement to be unenforceable. A clause stating this will mitigate that possibility.

* Merger/Entire Agreement. A merger clause states that the entire agreement between the parties is in the contract, so if it’s not in the contract, it’s not part of the agreement. When used with a good Amendments clause, see below), this will mitigate “he said/she said” fights, and will specify that “handshake” deals are out.

* Amendments Only in Writing. A clause specifying that amendments to the contract must be made in writing and signed by both parties blocks the ability to change the terms orally or unilaterally, or by mistake. Remember, oral contracts are possible (see above), so make sure the other party cannot argue that you both orally agreed to change things.

* Governing Law/Venue. This provision will specify which laws will apply, and where any lawsuit should be filed (i.e. for Heather’s design company in Portland, Oregon, we say that Oregon law applies, and any lawsuits must be filed in Multnomah County, Oregon, which in the event of a dispute, would be a big help to Heather). This is especially important when you are dealing with parties in different states – be clear where any lawsuits need to happen.

Bottom line, most disputes over contracts are due to ambiguities or miscommunications. The better you articulate the details in the contract, the less the likely you’ll have a dispute on your hands later. While there are a host of other issues to consider, these guidelines should provide you a general road map to follow.

About Jerry

Jerry Carleton is a business attorney in the Portland office of Bullivant Houser Bailey PC. He counsels both public and private emerging and growth-stage companies on corporate, finance and securities issues, including leasing and contractual issues, and general day-to-day business advice. Jerry also has experience with intellectual property matters, including trademark, copyright, and patent issues, and is a business owner himself. Learn more right here.

About Bullivant

Bullivant Houser Bailey PC is a dynamic and innovative business and complex litigation law firm of more than 155 attorneys with six offices on the West Coast. Founded in 1938, the firm maintains offices in Portland, Oregon; Seattle and Vancouver, Washington; Sacramento and San Francisco, California; and Las Vegas, Nevada. In addition, to better serve our clients in China, Bullivant has formed alliances with several of China’s largest law firms. In 2009, Bullivant was recognized as a Washington State Top Ten firm for diversity. In 2008, Multicultural Law magazine again named Bullivant a Top 100 law firm for workplace diversity. Learn more right here.

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7 Comments

Jen

I wish I’d known these things when I started. Especially, the oral contract part! :( Anyhow, this is a great intro to contracts for any new business owner. Thanks so much for the post. Great idea!

deanna

As always, this is great information. Thank you! I love the Biz Ladies and I look forward to Tuesdays.

Nathan

Back in the days when I was a freelance graphic designer it was all about the contract. The organization I was a member of had this monster sized contract. It actually scared away some potential clients, but then again they probably would have been trouble anyways.

Liz

It can be risky to work without a written contract but sometimes trying to read or write one is so daunting that I just want to run the other way. Thanks for the breakdown. I look forward to more great info in the rest of the series.

lindsay

Great topic! I’m in the process of negotiating my first licensing contract and boy could I’ve used some help! I consulted the Graphic Artist’s Guild Pricing & Ethical Guidelines Handbook, as a source of contract knowledge. I stood my ground on the terms, as I definetly felt like the company was hoping I didn’t know much and would just sign the contract as is. As buyers are flocking to Etsy to find new talent this is an area so many artists could use advice in…I’m definetly looking forward to future posts!

AV

May I suggest “spend a little up front”, there are alot of unemployed great lawyers right now and could use even the small consultancies (cheap!), to set yourself up w/ some basic documents to run your daily services business. Have a lawyer build you a few templates for the type of work you do–and if you sell anything online, have them also draft a ‘Privacy Policy” to cover yourself online for using or transmitting personal/financial data (and be sure to post it there.) You have all the documents when you start, take them into the meeting or every job w/ you–less stress/tension when you start out w/ it all in writing. Also, know a few firms/attorneys names you’ll use if you run into difficulties– don’t begin researching when you need them. You maybe can’t afford a retainer to keep them in your pocket year-round, but I have a hard time thinking of any lawyer not wanting to be called upon when you need them. They are trying to build a client-base as well.:-)

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