4 Problems to Avoid in a Contract

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4 Problems to Avoid in a Contract

Many contract disputes begin when a business owner has a “Looks good to me!” mindset when signing a contract. And while no one likes to incur legal bills, it is good practice to have an attorney review a contract before you sign it. Contracts can contain hidden traps that could potentially lead to litigation and serious financial consequences not only for your company but for you personally.

Here are four common issues that may create inequities or make it more difficult for you to enforce contract provisions against the other party or get out of a contract if necessary:

  1. Signing a contract that makes you a personal party.

If you have a business, it should be operating as a corporation or LLC (limited liability company). If your business is incorporated and you sign a contract as an individual, you have committed a grievous error that places your personal assets at risk. It makes you a party to that agreement. It effectively removes the personal liability protection that an incorporated business structure provides, making you personally liable for any claims arising from a contract dispute.

  1. Not ensuring that the contract includes all key terms.

All contract terms agreed upon during negotiations need to find their way into the final agreement before you sign it. It is quite difficult to enforce another party’s promises if they are not written directly into the agreement. In other words, if it’s not in the agreement, it’s probably not enforceable.

  1. Duty to pay is not balanced with duty to perform.

One party’s duty to pay must be balanced with the other party’s duty to perform or there are built-in inequities in the agreement. Typically, it is much easier to enforce a contract against a party that has failed to pay since the facts are clear: one party is not getting paid. It can be more difficult to base a breach of contract claim on failure to perform if performance measurements are not spelled out in detail within the agreement. This is especially true for service agreements when subjective terms like “poor performance” are used without specifics that can actually be measured.

  1. The contract has broad indemnities that favor one party.

Many businesses have standard agreements that include all types of disclaimers, limited liability, and indemnity provisions that are overly broad. If you are providing services to a company that asks you to perform work that may potentially infringe on another’s rights, you are putting yourself at risk if you agree to indemnify against potential claims related to your services. Before you sign an agreement, be sure the indemnity clause is fair, balanced, mutual, limited, and within your control.

When you are facing any type of business dispute, you need an experienced Arizona trial attorney to obtain the best possible result. Contact Williams Mestaz, L.L.P., at (602) 256-9400 to speak with us about your case.

 

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