CONTRACTS 101: What you need to know to protect yourself (Part 1 of 3)

Mature woman holding journal and thinking.WHAT IS A CONTRACT?  It is basically a promise for a promise between 2 or more Parties.  To have a binding contract, you need three things:  an offer, an acceptance by the Party receiving the offer, and consideration, which can be money, an action, refraining from an action, love and affection, etc.  

Example:  I promise to take photos at your wedding (offer), you agree to my offer to take photos at your wedding (acceptance), and you promise to pay me a specified amount for doing so (consideration).

TYPES OF CONTRACTS:

a. Written or Express Contract.

b. Oral Contract.

c. Implied Contract.

WHO ARE THE PARTIES?  The businessperson providing goods or services is one Party, and the person paying him/her is the other.  Notice that the person paying for the goods or services may or may not be a Party to the contract.  Make sure that the contracting Party is at least eighteen years old, or they cannot legally sign a contract.

Example:  If you are a wedding photographer, the bride and groom will be the ones you take pictures of, but the father of the bride may be the one signing the contract and paying you.

a.Business Entities

If either Party is a business entity, be careful how the signature line to the contract is laid out and how the Parties sign.  If you fail to do this, you or your client may be obligating yourself personally instead of your company or his/her company.

Example:  If the businessperson, Sam Smith, is an individual or a sole proprietor doing business as a company name, he will sign his individual name on the signature line as follows:

___________________________

Sam Smith, dba Smith Photography

If the other Party paying Sam Smith is a corporation or LLC or limited partnership, they should have a signature line like this:

_____________________________________________________________

ABC CorporationABC Sales, LLCABC Sales, L.P.

By:  _________________By: __________________By: __________________

Jenny Jones, Jenny Jones, Jenny Jones,

Its President Its Manager Its General Partner

WHAT IS THE PURPOSE OF THE CONTRACT AND WHEN DOES IT TERMINATE?  Here you want to be as specific as possible so that no one is guessing what you will do and when you will do it.

Example:  Sam Smith will sell to Jenny Jones 400 Phillips-style Craftsman screwdrivers at $10.00 each to be delivered to Jenny Jones on or before 5:00 p.m. June 1, 2016 at 123 Main Street, San Francisco, CA.  Jenny Jones shall have the right, but not the obligation, to terminate the contract and return any screwdrivers delivered after 5:00 p.m. on June 1, 2016.  Payment in full shall be due upon delivery.

CONSIDERATION. How and when will you be paid for your services?  If a deposit is made to reserve the businessperson’s time or a venue, such as a hotel, when do deposits become non-refundable?  What are the businessperson’s obligations, if any, if the other Party does not timely pay for deposits?  What does the businessperson do to notify the other Party that he/she will not perform because he/she hasn’t been paid according to the contract?  This is particularly important in service contracts, like wedding photography, IT services or any time a person is giving up other opportunities if a purchaser of services doesn’t show up, or doesn’t timely cancel an appointment, say with a doctor or a lawyer.  You may want to include interest on any balances unpaid for 30 days or more as well.

Need help with drafting, review or negotiation of a contract? Nancy Lewellen can help you do this with ease.  Contact her today at nyl@palladianlawgroup.com or 415-399-0993 for a free 15-minute consultation.

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