Contract Law 101- Identification of the Goods, Services & Promises.
Every contract is an exchange of something between two or more parties. The exchange could be one of several general types, such as:
1. An exchange of goods and/or services for money.
2. An exchange of differing services and/or goods between companies.
3. An exchange of goods, services or money for a promise to do or not do something.
These items which are to be exchanged are the basis for an offer and consideration. No contract can exist without them. An offer from software Company 'X' to an accounting firm Company 'Y' might be to supply and install software on Company 'X''s computers, to ensure that the software is running correctly, to offer to train company "X"'s employees in the use of the software and to provide technical support during the life of the installation. In exchange, Company X provides the consideration- it promises to allow access to its computer systems and databases, share technical specs to Company "Y" so that it can provide the correct software for installation, pay for the software and pay a monthly or yearly fee for the use of technical support.
Without this exchange where both parties have specific and definable obligations, no legally enforceable contract can exist. Therefore, it is of paramount importance that in any contract you enter, these obligations are spelled out with sufficient detail and clarity. A detailed and clear expression of these obligations can lead to a harmonious, profitable and continuous relationship where both parties get what they expect. A less detailed or clear contract might just end up where no one wants to be- in court where a judge or jury must decide what the parties agreed to.
So how do you ensure that you get everything you expect to from the relationship? You make sure to take the time to think about, research and negotiate all the important points of the contract and then you make sure to memorialize those negotiations or any agreements in sufficient detail so that someone not familiar with the contract can plainly see what the parties agreed to.
For instance, let's say you are getting involved in a publishing agreement with another party where you will be licensing or selling your right to publish a book you plan on writing to a publisher. In exchange for giving up your right to publish this book, the publisher indicates that it will pay you $5,000 up front and then give you 7% royalties on each trade paperback book sold. Seems like enough info, but did you memorialize within the contract when the $5,000 is to be paid? Is it all up front? Half to start and then half upon completion? What about discounted goods, what are your royalties on those sales? What about hardback books? (Which are not trade paperbacks) Do you get the same 7% or will they pay you 15% on those more expensive books? Do they have an obligation to market your book? What if they fail to market the book? Does the contract give you your grant of rights back if the book falls out of print? What is the definition of falling out of print? You better believe that the publisher's definition might be slightly different than yours.
Many times, a person entering into a contract may not know or understand all of the implications of certain wording which has been placed in the contract. Many people look at some contractual language as "legalese" and gloss over it. This could be a serious mistake. Certain words can have a different legal meaning than the common meaning of the term, making it difficult to understand. For example, if a lease had a clause that that the Landlord had an "option to determine the lease", what does this mean? (It means he has the right to end it). But in ordinary usage, would the average person really know what that meant? Probably not without doing a little research. What about the difference between a freehold and a non-freehold estate in a land contract? For that matter, what about the different types of freehold estates? An Estate for years; an Estate from period to period; an Estate at Sufferance; and an Estate at will are not nearly the same.
Maybe the person reading and signing the contract is not a subject-matter expert, and who would not know how to ensure that every clause which needs to be in a particular contract is in it. Using the publishing example from above, most people would not know that there may be differing royalty rates for different types of books being published. This is a subject-specific knowledge point that if unknown, can keep you from getting the best bargain you might otherwise be able to get.
The previous three paragraphs provide a small example of ways in which a person entering into a contract with good intentions, can end up at a later point scratching his/her head and wonder how he/she got into this mess in the first place. That is why it is imperative that you think hard about what you want to get out of your contract, and how you want to get it. You then enable yourself to do intelligent research that will benefit you when you negotiate the details. Even so, many times it is still best to contact an attorney who will have the training and knowledge to help ensure you are getting the benefit of the bargain you thought you were getting. As they say, especially with contracts, an ounce of prevention is definitely worth a pound of cure. Feel free to reach out to our office for a consult or to get in touch with us to review your next contract. It could be the best thing you do!