Avoiding Common Contract Pitfalls

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Basic information seminar on contract issues that small businesses face.

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Avoiding Common Contract Pitfalls

  1. 1. Presented by the Robert Rogers Law Firm, PA
  2. 2. <ul><li>This information is presented in a general format for the benefit of all. As such, it should not be taken as legal advice regarding a specific situation you may be involved in. Each company is unique and an specific questions should be dealt with by consulting with an attorney. </li></ul>Information presented by the Robert Rogers Law Firm, PA
  3. 3. <ul><li>General Contract Terms </li></ul><ul><li>Common Mistakes </li></ul><ul><ul><li>Failure to put in writing </li></ul></ul><ul><ul><ul><li>Actual contract </li></ul></ul></ul><ul><ul><ul><li>Changes to contract terms </li></ul></ul></ul><ul><ul><ul><li>Regardless of parties involved </li></ul></ul></ul><ul><ul><ul><li>Regardless of size of the contract </li></ul></ul></ul><ul><ul><li>Missing terms </li></ul></ul><ul><ul><ul><li>Critical terms </li></ul></ul></ul><ul><ul><ul><ul><li>Price </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Subject matter </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Time </li></ul></ul></ul></ul><ul><ul><ul><li>Dispute resolution </li></ul></ul></ul><ul><li>Failure to negotiate </li></ul>Information presented by the Robert Rogers Law Firm, PA
  4. 4. <ul><li>What is a contract? </li></ul><ul><ul><li>Agreement between two or more parties involving exchange of goods, services or both. </li></ul></ul><ul><ul><li>Generally, all parties gives something of value in the exchange. </li></ul></ul><ul><ul><li>Both parties must be aware of and agree to the terms that have been laid out. </li></ul></ul><ul><ul><li>Can range in complexity based on the type of transaction. </li></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  5. 5. <ul><li>What is a contract? </li></ul><ul><ul><li>Contracts are most often in writing, but can exist as oral contracts in some instances. </li></ul></ul><ul><ul><li>A contract represents the collective agreement of all parties involved as to the terms of that agreement. </li></ul></ul><ul><ul><ul><li>This is often referred to as a “meeting of the minds.” </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  6. 6. <ul><li>Parties Involved </li></ul><ul><li>Goods/Services Exchanged </li></ul><ul><li>Price/Payment Terms </li></ul><ul><li>Time of Completion </li></ul><ul><li>Description of Location </li></ul><ul><li>Dispute Resolution </li></ul><ul><li>Applicable Law </li></ul><ul><li>Special Terms and Conditions </li></ul>Information presented by the Robert Rogers Law Firm, PA
  7. 7. <ul><li>Failure to put in writing: </li></ul><ul><ul><li>Situations when a contract must be in writing or it is not valid- </li></ul></ul><ul><ul><ul><li>contracts involving goods priced at $500 or more </li></ul></ul></ul><ul><ul><ul><li>promises to pay the debts of another </li></ul></ul></ul><ul><ul><ul><li>promises made in consideration of marriage </li></ul></ul></ul><ul><ul><ul><li>promises that cannot be fulfilled within one year </li></ul></ul></ul><ul><ul><ul><li>a personal representative's promise to pay the debts of an estate </li></ul></ul></ul><ul><ul><ul><li>a promise to pay a debt barred by the statute of limitations </li></ul></ul></ul><ul><ul><ul><li>home solicitation sales </li></ul></ul></ul><ul><ul><ul><li>home improvement contracts </li></ul></ul></ul><ul><ul><ul><li>contracts concerning an interest in land </li></ul></ul></ul><ul><ul><ul><li>health care guarantees </li></ul></ul></ul><ul><ul><ul><li>newspaper subscriptions </li></ul></ul></ul><ul><ul><ul><li>credit agreements </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  8. 8. <ul><li>Failure to put in writing: </li></ul><ul><ul><li>Why you should put your contract into writing- </li></ul></ul><ul><ul><ul><li>Protect you own interests </li></ul></ul></ul><ul><ul><ul><li>Clearly outline the agreement </li></ul></ul></ul><ul><ul><ul><li>Professionalism </li></ul></ul></ul><ul><ul><ul><li>Bargaining power/negotiation </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  9. 9. <ul><li>Failure to put in writing: </li></ul><ul><ul><li>Contract Changes- </li></ul></ul><ul><ul><ul><li>Ongoing relationship </li></ul></ul></ul><ul><ul><ul><li>Change in relationship </li></ul></ul></ul><ul><ul><ul><li>Change in market </li></ul></ul></ul><ul><ul><ul><li>Change in quantity/price </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  10. 10. <ul><li>Failure to put in writing: </li></ul><ul><ul><li>Regardless of parties involved- </li></ul></ul><ul><ul><ul><li>Family members </li></ul></ul></ul><ul><ul><ul><li>Long-time friends/neighbors </li></ul></ul></ul><ul><ul><ul><li>Long-time business partner </li></ul></ul></ul><ul><ul><ul><li>New/emerging business </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  11. 11. <ul><li>Missing Terms: </li></ul><ul><ul><li>Critical Terms- Price/Quantity </li></ul></ul><ul><ul><ul><li>Price Issues </li></ul></ul></ul><ul><ul><ul><ul><li>What is the exact amount to be paid? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>When will it be paid? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>How will it be paid? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Conditions of non-payment? </li></ul></ul></ul></ul><ul><ul><ul><li>Quantity </li></ul></ul></ul><ul><ul><ul><ul><li>Set exact amounts out in the agreement </li></ul></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  12. 12. <ul><li>Missing Terms: </li></ul><ul><ul><li>Critical Terms- Subject Matter </li></ul></ul><ul><ul><ul><li>Clear description of items or services in question? </li></ul></ul></ul><ul><ul><ul><li>Need for technical specifications? </li></ul></ul></ul><ul><ul><ul><li>Warranties/Guarantees </li></ul></ul></ul><ul><ul><ul><li>Allow for substitutes? </li></ul></ul></ul><ul><ul><ul><ul><li>How will that affect price? </li></ul></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  13. 13. <ul><li>Missing Terms: </li></ul><ul><ul><li>Critical Terms- Time/Location </li></ul></ul><ul><ul><ul><li>Is time of the essence </li></ul></ul></ul><ul><ul><ul><ul><li>What happens if there is a delay? </li></ul></ul></ul></ul><ul><ul><ul><li>Shipping/Delivery </li></ul></ul></ul><ul><ul><ul><ul><li>Who pays? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Where is product delivered to? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Who can receive shipment? </li></ul></ul></ul></ul><ul><ul><ul><li>Location of Performance </li></ul></ul></ul><ul><ul><ul><ul><li>Service contract </li></ul></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  14. 14. <ul><li>Missing Terms: </li></ul><ul><ul><li>Not paying attention to boilerplate language in a contract. </li></ul></ul><ul><ul><ul><li>Warranties </li></ul></ul></ul><ul><ul><ul><li>Attorneys’ Fees </li></ul></ul></ul><ul><ul><ul><li>Ability to assign </li></ul></ul></ul><ul><ul><ul><li>Conflict resolution </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  15. 15. <ul><li>Negotiate: </li></ul><ul><ul><li>Making a first draft </li></ul></ul><ul><ul><ul><li>Review similar contracts </li></ul></ul></ul><ul><ul><ul><li>Allows you to set terms initially </li></ul></ul></ul><ul><ul><ul><li>Shows assertiveness </li></ul></ul></ul><ul><ul><ul><li>Demonstrates professionalism </li></ul></ul></ul><ul><ul><li>Reviewing other party’s draft </li></ul></ul><ul><ul><ul><li>Know your priorities </li></ul></ul></ul><ul><ul><ul><li>Clarify ambiguous language in the contract </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  16. 16. <ul><li>Negotiate (Skills): </li></ul><ul><ul><li>Aggressive but reasonable </li></ul></ul><ul><ul><li>Know your market/competition </li></ul></ul><ul><ul><ul><li>What is the industry standard for your product or service </li></ul></ul></ul><ul><ul><ul><li>What is considered normal or reasonable price </li></ul></ul></ul><ul><ul><ul><li>What do your competitors offer? </li></ul></ul></ul><ul><ul><li>Know the other contracting party </li></ul></ul><ul><ul><ul><li>Level of business sophistication </li></ul></ul></ul><ul><ul><ul><li>Needs and wants </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  17. 17. <ul><li>Negotiate: </li></ul><ul><ul><li>Always be prepared when entering a negotiation </li></ul></ul><ul><ul><li>Be prepared to negotiate on every term </li></ul></ul><ul><ul><ul><li>Especially if you did not draft the contract </li></ul></ul></ul><ul><ul><li>Do not make assumptions about the other party </li></ul></ul><ul><ul><ul><li>Their understanding of contract terms </li></ul></ul></ul><ul><ul><ul><li>Their actions based on the contract </li></ul></ul></ul><ul><ul><ul><li>ALWAYS ASK QUESTIONS! </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  18. 18. <ul><li>Negotiate: </li></ul><ul><ul><li>Conflict resolution </li></ul></ul><ul><ul><ul><li>Best time to decide how to deal with problems is when there are no problems. </li></ul></ul></ul><ul><ul><ul><li>Focus will be on coming to an agreement because that is the goal of the two parties </li></ul></ul></ul><ul><ul><ul><li>Evaluate both long and short-term benefits to the business deal </li></ul></ul></ul><ul><ul><ul><li>Consider alternative dispute resolution methods </li></ul></ul></ul>Information presented by the Robert Rogers Law Firm, PA
  19. 19. <ul><li>www.allbusiness.com </li></ul><ul><li>www.findlaw.com </li></ul><ul><li>http://www.associatedcontent.com/article/58021/contract_drafting_tips.html?cat=17 </li></ul><ul><li>www.lawdepot.com </li></ul><ul><li>www.legaldocs.com </li></ul>Information presented by the Robert Rogers Law Firm, PA
  20. 20. <ul><li>Contract Basics </li></ul><ul><li>Common Mistakes </li></ul><ul><ul><li>Failure to get a written contract </li></ul></ul><ul><ul><li>Missing terms in a contract </li></ul></ul><ul><ul><li>Negotiation </li></ul></ul><ul><li>Resources </li></ul>Information presented by the Robert Rogers Law Firm, PA
  21. 21. Information presented by the Robert Rogers Law Firm, PA

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