Ten Things to Consider When Negotiating a Contract

1. Who are the contracting parties. If you are the payor (the person that is paying under the contract) it is best to avoid a personal guaranty. If you are the payee (the person receiving payment under the contract) it is best to get a personal guaranty.
2. What is the consideration. Typically, for contracts to be enforceable, there has to be consideration which, in laymen’s terms means, that one party needs to give something and the other party needs to get something.
3. The contract should be signed in front of a notary public. Signing in front of a notary reduces the possibility that one signatory may later claim that the signature on the contract does not belong to them.
4. Carefully proofread the contract. Typographical errors can obscure the meaning of the contract which may cause a Court to later determine that the contract is “ambiguous.”
5. Avoid constructions against the drafter. If you are the party drafting the contract, and the contract is being negotiated, you should include a clause that says that, in the event of an ambiguity, which is discovered later, the contract will not be construed against you. In other words, the ambiguity will not be held to be your fault; the fault will be shared equally.
6. Maintain your home turf by including a jurisdiction and venue provision. It is always better to litigate in your home state if litigation becomes necessary. For further evidence, ask the Golden State Warriors.
7. Be careful to use the correct draft. Circulating multiple redline drafts of a contract can be very efficient. It can also be fraught with peril if you use the wrong draft since a Court is likely to enforce the draft with the signatures on it regardless of whether it is the correct draft or not.
8. Make sure the person signing on the other side has the authority. Check to see if you need a board resolution if the contracting party is a corporation or other business entity. Not all corporate leaders are vested with the authority to sign large contracts. Read the company by-laws of the other contracting party if necessary.
9. Make sure the contract clearly spells out deadlines and required time periods and avoid vague language like “as soon as possible” or “promptly.” Instead, try this: “no later than thirty days from the execution of this agreement.” Its hard to argue with that language.
10. Verify and do not rely on oral statements. People make all sorts of claims when negotiating a contract. It is best to verify the truth of those statements through documents or financial statements. Don’t take anyone’s word for it.

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