At some point, nearly every American enters a contract. Contracts take many forms and they are important to the transaction of business.
Contracts we enter for certain things may have inflexible language. For example, leases for apartments, mortgages for real estate, auto loan documents or life insurance policies are not typically contracts most of us can change. They are one-sided and consumers have little say about their terms. These are often referred to as “adhesion” contracts.
Contracts between small businesses or between individuals usually can be drafted so they include language both parties want. The terms of the contracts can be negotiated. They should have terms that are favorable to both parties and still set forth the responsibilities of each party. These types of contracts are considered to be “arms-length” agreements. The rest of this article will address certain things one ought to consider in entering arms-length contracts. It is not-all inclusive.
Once a contract spells out each party’s responsibilities, there are three other items (often more than just three) that should be included: mutual indemnification, the duration of the contract and what each party can do if the other breaches the contract.
Mutual indemnification means there should be a provision that each side pays for what it breaks. In other words, if one party’s failure to correctly do something causes damages to the other party (damages may be in the form of claims of a non-party) the party who caused the problem has to pay to fix it.
The duration of a contract is always important. Often, contracts are set up to last a year or two. They may include provisions for renewal for successive periods. Specified durations allow persons or businesses doing business with each other to evaluate relationships and end them easily.
Finally, it is important to include provisions that protect each party if the other party does not perform well. These are “breach” of contract provisions. They spell out the methods by which parties notify each other of dissatisfaction, what must be done to correct problems and what happens of problems are not corrected.
Most of the time, well-written arms-length contracts help businesses and people sort through and resolve issues easily.
Information provided by Tom Murphy, attorney at law, Hopkins and Huebner, P.C., 1009 Main St., P.O. Box 99, Adel, 515-993-4545, fax: 515-993-5214.