15 Jan 2016

6 Legal Blunders to Avoid in Business Agreements

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A client recently called and asked to have a legal agreement reviewed before signing it. Excellent! However, the client confused “reading” an agreement with “understanding the legal effect” of the words in the agreement. The client stated he “did not see any red flags.” Well, they were there; the client just did not understand what they were. This particular client did not want to pay for a legal review – preferring to save pennies and risk dollars. I hope that all will go well.

Legal Blunder — Anyone can make a blunder in entering into legal agreement. Yes, even lawyers. If all goes well in a business relationship, the agreement becomes almost irrelevant. The trouble is that if something goes wrong, the first place everyone will look is to the agreement to see what their rights and remedies are. That is a very bad time to realize you blundered in signing the agreement. Here are some simple steps you can take to avoid those blunders.

Blunder #1 – Get it in Writing
The first and biggest blunder is not getting the agreement in writing. The Gentleman’s Code or Simple Handshake agreement can cause all kinds of trouble, especially since each party will most likely interpret the agreement to his or her own advantage.

Blunder #2 – Use Clear Language
Make sure the agreement is written in a clear understandable language. If you can’t understand it, then most likely the agreement has ambiguities that can lead to conflicts later on. Make sure all definitions are used correctly and consistently throughout the document.

Blunder #3 – Include all Crucial Elements
Make sure all the crucial elements are clearly spelled out in the contract — due dates, financial responsibility, buy/sell options, what happens upon the death of one party, etc. If there is a disagreement, how will the disagreement be settled? In a court of law? By arbitration? Try to think of anything that might happen to your agreement and provide for covering all possibilities.

Blunder #4 – Include a Governing Law Clause
If you are doing business out of state, you need to include a Governing Law Clause which state’s laws your agreement will be governed by. Even if you are both doing business in Arizona, it is still a good idea to write the Governing Law Clause into the agreement so you don’t end up in a court somewhere else.

Blunder #5 – Get a Properly Executed Copy of the Agreement
It is not uncommon for there to be only one original agreement. Either make sure that you are the one holding it or get a copy. If you don’t have one, it is very difficult to prove that you actually did create it. Make sure both parties’ signatures are included (and witnessed, if necessary). In addition, make sure any attachments, exhibits or amendments are included. Be especially cautious to make sure the parties in the agreement are properly identified.

Blunder # 5 – Read It!
How many contracts have you signed without reading them? People sign contracts without reading them all of the time. Often experienced business people don’t read their agreements. The law is that if you sign it, you will be held to not only have read it but to have understood it. After the fact complaints are meaningless. You should do this even if you hire a lawyer to review it. It is your agreement and you had better understand it.

Blunder #6 – Don’t Hire a Lawyer
You are the expert in your field. A lawyer could probably not do what you do. Are you trained in reading and understanding legal terms and their consequences? Probably not. Lawyers read and write agreements for a living. With your business and money at stake, take advantage of a lawyer’s years of experience and get them to review any business agreement for you. While good agreements are not insurance that nothing will go wrong, a good agreement is certainly better than one based on blunders.

If you have any questions, please feel free to schedule an initial call with Greg Poulos to discuss this and other business law concerns Schedule a Call.

This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

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