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The Dotted Line

Five questions to ask yourself before you sign that contract

If your insomnia is Nyquil- and sheep-resistant, scanning a nice 10-page contract before bed might do the trick. Say "contract" to most people, and they slide into an irreversible vegetative state.

But whether you're ordering office furniture or an ISP, you need to stay awake. Contracts can determine the success or failure of your business. All of them will bind your business for some time. So before you grab a Bic and sign, answer these five questions about that contract sitting on your desk:

1.Is this a contract? A contract is an agreement between two people or businesses. (The word "party" is frequently used, minus the music and drinks.) One party makes an offer; the other accepts it. Both must bring something valuable to the deal (such as money, a product or a service) or give up something of value (such as the right to sue). The contract must be legal. And both people/businesses have to be capable of contracting-old enough and not crazy. When all four conditions are met, you'll have an enforceable contract.

2.Does it accomplish what you want? Make a list of things you want from this agreement. For example, on a car lease, what repairs are included? Is there a penalty for early termination? Can you bargain negatives away? Your list should include all items and conditions you need and provisions you can't live with. Leave plenty of time to read, negotiate and revise before signing.

3.Does it recognize that things don't always go as planned? Is there room for the unforeseeable? Let's say you're selling the next kiddy collectible: "Luminous Lovelies"-stuffed animals with glow-in-the-dark eyes. There's just one problem: your "eye" supplier has filed for bankruptcy, and it's going to take time to find a substitute supplier. To avoid alienating merchants (and scores of 7-year-olds), build slack into delivery dates whenever possible. Also, figure out how to resolve disputes without dragging each other into court.

4.Have you run this by a professional? Is there anything you don't understand? Maybe you don't have in-house counsel or a partner on retainer waiting with legal answers, but there are low-cost alternatives for getting sound guidance. Ferret out the best advice you can, including tax aspects. Many states have "plain English" laws that apply to contracts. Ask questions until you understand everything you're agreeing to. Washington, DC, attorney Cindy Lynn Wofford warns clients to watch out for "any words or terms which are susceptible to more than one meaning." Wofford has seen situations in which one side "intentionally creates ambiguity so that the one party thinks they're agreeing to X. Later on, the other party claims the parties meant Y."

5.Is this a fair deal for both sides? Since the first Neanderthal entrepreneur traded a club for a roasted rabbit, contracts have kept commerce humming. The most successful are win-win. Isn't it more likely that disputes will crop up and cancellation loom if one side is "squeezing" the other just because it can? (Think "humongous software company.") Also, if a deal is too one-sided, the contract may be unenforceable.

Trust your gut. Fairfax, Virginia, lawyer Laurie Forbes poses a sixth question: "Will you lose any sleep, lose your appetite, require medication, use narcotics illegally or binge eat if something goes wrong with this deal?" If the answer is yes, she cautions, "don't sign."

Brain Food

  • The Legal Guide for Starting and Running a Small Business, Vol. 2 (Nolo.com, $29.95, 800-992-6656) by Fred S. Steingold, Esq.

  • The ABA Guide to Consumer Law: Everything You Need to Know About Buying, Selling, Contracts, and Guarantees (Times Books, $13, 800-726-0600)


Joan E. Lisante is an attorney and freelance writer who frequently writes about small-business issues, consumer concerns and premature aging among parents of teenagers.

Contact Source

Ravdin & Wofford PC, clwofford@ravdin-wofford.com.

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