When someone offers you a standard contract as part of doing business, don’t just sign it. Although you are a small business owner, you are no less important than large corporations when it comes to legal rights, and those corporations scrutinize every contract they sign. You should do the same. Become aware of the disadvantages of so-called standardized contracts so you can be on the lookout for problems.
Familiarise yourself with the concept of contract law and make use of the services of a qualified contract law lawyer.
A written contract is a legal agreement between two or more parties. Both parties, and their representatives, must sign the agreement. Anyone who is above the age of 18 and is mentally stable can enter into a contract.
Terms and Conditions
- A business contract states the terms and conditions of all agreements and transactions. If two people are entering into a contract, then the contract must clearly explain the roles and responsibilities of each person. Spelling out such details in this way helps to avoid any misunderstandings that may arise later in the partnership. With a written contract, both parties are more likely to discuss and come up with extremely comprehensive terms and conditions than if they just had a verbal agreement.
- Technically, both oral and written contracts are legally enforceable. However, with oral contracts, one or both parties can forget or misrepresent a few facts. In other words, oral contracts are willy-nilly, leading to a lot of he said, she said objectivity. With a written contract, everything is spelled out very clearly, so a court of law can resolve these disputes.
- In some cases, a request to enter into a written contract can imply that one person distrusts the other. This implication is particularly true in situations where people rely on goodwill and mutual trust to conduct transactions, or if the two parties have a long-standing business relationship. Asking for a written contract can jeopardize the working relationship.
Cost and Paperwork
- Written contracts are not always simple to draft. A layperson who drafts a written contract may make some errors or omit some important information. In some cases, a party may have to hire a lawyer to help draw up the contract. It can take up a lot of time and cost a lot of money for individuals and small businesses to implement for every agreement.
- Boilerplate usually is found at the end of a contract. This is standardized language that most contracts have. Many people do not even read this section, considering it to be jargon. The problem is not usually what the boilerplate puts in but what it leaves out. For example, if the person issuing the contract has deleted the part that says the loser in litigation will pay the winner’s attorney fees, you could find yourself at a disadvantage even if you win a dispute. Another example of problems with boilerplate is the section that says disputes will be resolved by arbitration instead of a lawsuit. If you want to reserve the right to sue, ask that this boilerplate section be removed. Read all boilerplate painstakingly to watch for sections that you do not agree with.
- One of the main problems that arises in legal actions regarding standardized contracts is price fixing. If a vendor offers you a standard contract with the prices for products printed as part of the text, you could be a victim of price fixing. A standard contract would leave the price blank, subject to negotiations. You might not be in a position to ask for favourable pricing, but you can ask that a phrase be added that allows you to renegotiate price at a future date. Some trade associations have been found guilty of price fixing by issuing standardized contracts that all vendors in that association use. If prices are part of the standardization, that is price fixing.
- The law often hinges on language. Words have specific meanings in contracts, and though your eye might gloss over words that sound right, you must be aware that a simple word change can alter your legal status. For example, use of the word “shall” has specific connotations. If a contract says that you shall do something that means you are obligated to perform that action. It is legally binding language. If this word is used regarding an action that you feel you should not be obligated to perform, ask that it be changed to “may.”
Favouring One Party
- When you are told that a contract is standard, ask whose standard contract it is. The word “standard” might sound like a group of attorneys somewhere agreed this is what a contract should say, but that is never the case. The standardization could have been done on the part of the company issuing the contract. It could be its standard contract. As such, it could favor the company. You have a right to negotiate your own favourable terms. The moment you hear that a company has given you a standard contract, start reading the fine print to find areas that put you at a disadvantage.