Three Things to Watch Out for When Signing a Business Contract

Whenever a person or business signs a contract they are creating a legally enforceable set of rights and obligations. Therefore, a business owner should always fully understand the terms of any contract he or she signs and the consequences of violating any of those terms. Because contracts can be loaded with confusing legal jargon, it is important to seek a lawyer with experience in business contracts to ensure the business contract adequately and fully represents your obligations and preferred objectives.

So if you’re a business owner about to sign a business contract, pay attention and watch out for the following three points.

Terms of the Agreement.

The terms of the agreement are the most basic element of a contract. After a good faith negotiation, all parties to the contract should write the terms of the agreement in the most descriptive and clear manner. All parties to a business contract should be especially wary of any ambiguous terms, or any missing terms that could lead to ambiguity. While legal jargon can, unfortunately, be confusing to the layman, the terms have consequences for the parties to the agreement. For that reason, it is important to always have a business law attorney review all of your material contracts.

Risk Allocation.

In any contract, the parties will need to agree on the “allocation of risk.” While each contract handles risk allocation differently, most contracts place the risk of loss on the party in the best position to mitigate the risk. When the party in the best position to mitigate the risk changes, then the risk allocation also commonly changes. For example, a toy maker may be responsible for any damage to its products during the shipping and manufacturing process. However, once the purchaser of the toy receives the product, then the risk allocation would likely pass on to the toy purchaser.

Another method of risk allocation involves representations and warranties. These are fairly common to understand and are common in many contracts. For example, the purchaser of a new car will likely have a set period of years (or a number of miles driven) where he or she will not be at risk for any serious mechanical problem that happens to the vehicle.

Dispute Resolution.

Absent an agreement otherwise, most disputes will be either litigated through the court system or settled beforehand by the attorneys representing the parties to the agreement.

In recent years, however, alternative dispute resolution has grown in prominence – especially in business contracts. Alternative dispute resolution gives the legal authority to a private company to resolve the contract dispute. This approach to justice may be faster, more efficient, and less adversarial than litigating the dispute through a courtroom.

On the other hand, alternative dispute resolution may significantly limit your access to evidence that could prove beneficial in proving or defending your case, and judgments resulting from alternative dispute resolution proceedings are often final and binding with limited or no appeal rights. 

Consult a Business Law Attorney

Because a contract involves legal obligations for your business, you should always speak to an Ohio attorney with knowledge of business contracts and any possible unintended consequences they may have on your business.


Please note: The information presented in this post is not legal advice and does not form a lawyer/client relationship.

Laws and circumstances can differ and change.  Please contact us for a personal review of your situation

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