Whether you are signing a contract as an entity or as an individual it is important to have an attorney review the contract before you sign. A contract of any kind is binding as long as there is a valid offer, acceptance of that offer, and something is bargained for and received from one party to another. Due to the binding nature of a contract, having knowledge of exactly what you are agreeing to is crucial to ensure you do not breach the contract. Contracts can get complicated quickly. Having an attorney review your contract can save you money in the long run because you will be fully informed as to what the contract entails.
Depending on your status when signing the contract, there are varying considerations to take into account. The four situations for a business or individual with a contract that I will discuss below are:
- an entity/business creating a contract
- example: when a business is purchasing another business and drafts the asset purchase agreement
- an entity/business signing a contract
- example: when a business is presented with an asset purchase agreement to sign
- an individual creating a contract
- example: when an individual is renting out the basement of their house and drafts the lease agreement
- an individual signing a contract
- example: when an individual signs a non-compete or non-disclosure agreement with their employer
An Entity/Business Creating a Contract
When any entity is creating a contract, a review by an attorney is essential. Entities may have hidden liabilities when they do not have contracts reviewed by an attorney. There are multiple pitfalls an entity can fall into when creating a contract – everything from indemnification issues to lack of a clear avenue for recourse if there is a default. There are more issues that can be found than can be written in a textbook, much less this article. Suffice it to say, there are issues that can be spotted by the eye of a trained attorney who has looked at, depending on experience, dozens, or more, of similar contracts.
Creation of a contract can be complicated, depending on the type of contract and the purpose of that contract. While the entity could possibly create the contract themselves, it is best to have an attorney look it over once it is drafted. To save time, an attorney can draft and edit the contract completely from the beginning and ensure the contract is completely sound.
An Entity/Business Signing a Contract
When signing a contract, it is even more important to have an attorney review the contract. When an entity or business is in the position of receiving a contract, they are not in the position of knowing the document intimately. A review will be necessary to completely understand what the signing entity is promising. Usually, the pitfalls are greater when the entity did not draft the documents and did not decide what provisions were to be included.
There is an old adage: “you don’t know what you don’t know.” This is true for an entity signing a contract they did not draft. If an entity does not have a good idea of what is going on in the contract, then it is often difficult to know what to look for. Knowing the right questions to ask and the holes to look for is invaluable when looking at a contract written by an opposing party. An experienced attorney knows those questions and the holes to look for. Essentially, an attorney can help figure out “what you don’t know” and create a better agreement and position for your business.
An Individual Creating a Contract
When an individual is creating a contract, a review by an attorney is advisable as well. If you are looking to write a contract that you would like another to sign, you want to make sure you are protected and are getting what you are bargaining for. For example, it is a common practice in Utah to rent out the basement of a home. It is simple to find a lease agreement online, but to ensure that you are protected, and that every part of the contract applies to your situation, review by an attorney can make a big difference. A lease, for example, can decide a number of issues including liability for damage, ability for the tenant to alter the property, liability for wear and tear, and who gets the deposit when the tenant moves out. These issues are just the tip of the iceberg of what will need to be examined in a lease.
A lease is just one example of a contract that an individual might draft for another individual or company. There are a great number of contracts and a great number of issues in each of those contracts that could be found. It is difficult to anticipate all of these issues, but an attorney who deals with contracts every day, is a great asset when creating contracts.
An Individual Signing a Contract
When an individual is signing a contract, it can seem easy to simply sign a name and move on with life, but there can be serious legal ramifications. While signing terms and conditions put out by a website or app on our phone is important to review personally, these do not need to be reviewed by an attorney. The types of contracts that should be reviewed by an attorney are the contracts that will place any sort of responsibility or liability on an individual. In the example of signing a non-compete or non-disclosure agreement with an employer, it is important to have this type of agreement reviewed by an attorney. Each state has different rules about non-competes. Utah, for example, has a rule that a non-compete cannot be longer than 1 year. This is one example of an issue that should be reviewed for when an individual is signing an agreement. Other such issues can be spotted, and an individual can be protected, with review by an attorney.
Whether you have written a contract or are being asked to sign one, having a lawyer review it will provide you with the best protection.
We Can Answer Questions Regarding Contract Review
If you have any questions about contract review or other legal issues surrounding starting a business, we can help. I offer a free consultation. My direct dial is 801-365-1020, and you can email me at [email protected].