Small Business Contracting Basics from Sterling Part One

Introduction and Questions to Ask Before Drafting
Contracting for small businesses and individuals can be an intimidating and challenging thing to contemplate for the uninitiated. Generally speaking, it is always advisable to have a licensed attorney review important legal contracts before they are signed. Better still to have that same attorney draft the contract or negotiate the terms with the party that you are contracting with. However, there are a number of reasons this can be impractical or impossible. It may be the case that you simply cannot locate an attorney, that the deadline is too tight to bring in another party to add input, or as is sometimes the case, it is simply too expensive to use the services of an attorney to review the contract. This series will explore common contracting issues and provide some things to consider in forming contracts that meet your needs.

Fully Flesh out the Contract

Generally speaking individuals in the United States have the right to contract. This means that if you can think of it there has been a contract created at some time in the past for the exact subject that you are now considering and also an exhaustive amount of litigation dealing with a poorly written contract of that type. I cannot stress enough that poorly thought out contracts can cause many more problems than the subject matter of the contract that you are now contemplating. This means that YOU need to understand a number of things before you ever begin drafting. Specifically, you should ask yourself the following questions before you begin drafting the specific language or consulting an attorney.

  • 1. What goal do you want the contract to accomplish?
  • 2. What could go wrong before you perform the contract?
  • 3. What could go wrong during your performance of the contract?
  • 4. What could go wrong before the other party performs the contract?
  • 5. What are the consequences of the entire contract falling through?

  • You may not have a full grasp of what all of the consequences are depending on how experienced you are in the field and a number of other factors but it is still vitally important to at least try and answer the above questions.The above is not personalized legal advice and no attorney client relationship is created therefrom

    What Goal do You Want the Contract to Accomplish?

    The first question I encourage you to ask yourself deals with the age old philosophical question of “what do I want,” because once you know what you want it will make it that much easier to understand how to get it. Answering the question “what goal do I want the contract to accomplish” can be as easy as “I want to buy a widget for my business” or “I need a new employee” or as complicated as “I want to secure myself from potential copyright liability when I begin designing a customer’s website.” If you have a solid idea what the contract needs to do it will be easier to narrow down the language that you may want to include within the contract. At the very least, knowing the answer to this question will make any search that you perform online or in the law library easier.

    What Could Go Wrong Before You Perform the Contact, During Performance or Before the Other Party Performs the Contract?

    Most people like to think that things will go well but call me cynical (realist) I tend to be a strong believer in Murphy’s laws ( Generally speaking even if you are a bright-side-everything-will-be-ok kind of person it is always important to consider the negative consequences of your actions and contracts are no exception. For example, say that you intend to purchase widgets (because that is the example always used) in bulk for a set price, because after answering the previous question this is the goal you have set. Now say the loan you intended to use to pay for the widgets falls through, I hope you thought of this as a possibility before you entered the contract because now you may be on the hook for widgets that you cannot pay for.
    Additionally, what happens if the truck the widgets are being transported in blows up, yes not very likely but still it could conceivably happen, I hope you thought of this too so that the contract clearly establish whether or not you have to pay for the widgets that are now scattered over the remains of a burning truck. While you may not always have the option to negotiate the contract, and you will not be able to contemplate all things that could potentially go wrong, if you put in some thought you may find yourself well ahead of the game when it comes to a sticky situation.The above is not personalized legal advice and no attorney client relationship is created therefrom What are the Consequences of the Entire Contract Falling Through? The answer to this question will likely be a determining factor in how thorough, detailed, formal, and extensive the contract will be. This question is all about risk. How much risk you are willing to bear in the formalities (or lack thereof) of a contract should be proportionately weighted to how much the failure of the contract will impact your business or personal life if the worst should happen. If the entire contract falls through or worse yet if the contract fails and a lawsuit will be necessary can you survive without going into bankruptcy?
    If you know how disastrous such failure would be then you are going to treat the contract with an appropriate level of care and make the drafting of the contract easier for yourself or the attorney that you hire to draft the contract. Concluding Remarks If you consider all of the above questions before preparing contracts you will create sharper contracts and possibly think of situations or troubles that you can prevent through clarity in the drafting phase. Thank you very much for reading.