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5 TIPS WHEN NEGOTIATING A CONTRACT
- Be certain the correct parties are named: if you want the other party to be personally bound then don’t let them execute the contract in the name of their company. If you don’t want to be personally bound, then use a legal entity to be bound and not yourself personally.
- Don’t agree to anything important verbally then not put it into the agreement. The contract will probably have a “merger clause” which states that there are no other agreements outside of what is in the contract and this provision makes it difficult to prove that there were any extraneous terms that the parties agreed to but did not include in the document.
- Make sure the choice of law jurisdiction is something you can live with. Generally the party with the power will select the state or general jurisdiction where any litigation will take place. Be sure that if you suspect a legal dispute may occur you will be able to initiate a lawsuit in that location, which may be very distant or even in another country. If the other party is far away they may believe they are beyond your reach if they breach or default.
- Try to negotiate a way out. In general the party being paid will want it to be very difficult for you to terminate the agreement and stop payment; you will want to negotiate the shortest notice period before termination and/or allow yourself to stop payment of any moneys in the event of the other party’s material breach or default. Ensure that both material breach and default are clearly defined, meaning if the other party does not perform specifically as agreed in the contract that is a material breach that will allow you to cease your performance as well.
- Always carefully double check defined terms. Some contracts will use terms defined in other parts of the agreement to trick the signer into not realizing what they just bound themselves to. Make sure you fully understand the definition of a term and how it is being used in another part of the document. Sometimes one or two words will bind a signer to spend thousands without even realizing it.
- This is a freebee: always use an experienced lawyer to review your agreement and understand any pitfalls; this doesn’t mean a friend family law or criminal law attorney or a CPA. They may think they know what they’re looking at, but here, in this firm, thousands of contracts of all types have been drafted, reviewed, and revised. Contracts are mostly what is done here; and we have seen it all.