Contracts are Everywhere #
In modern society contracts are simply a fact of life. We enter and perform contracts every day without thinking twice about them (or even thinking about them at all). When you’re purchasing something online, subscribing to a streaming service, opening a bank account, getting a credit card, getting a haircut, renting an apartment, accepting a job, etc., you are entering into a contract. Contracts can be written, verbal or even implied. Here we’ll focus on the written contract.
While it is often advisable for you to have a lawyer review a contract before you sign it, ultimately it is you, not your lawyer, that is affected by the contract. That means you need to understand what it is you are being asked to sign.
Here are ten things to look for when you are reviewing a contract.
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Who #
Only the parties to a contract are bound by the contract. In general, for a written contract to be binding it must be signed by you or someone with the legal authority to sign on your behalf. You can’t give away someone else’s rights, services or property (unless they have legally given you authority to do it). Things to look for:
- What specific people and/or entities will be bound by the agreement?
- Who will sign the agreement?
- Will the people signing the agreement be signing on their own behalf or on behalf of someone else? Is this clear in the agreement?
- If someone will be signing on behalf of someone else, do they have actual authority to do so?
- Does the contract try to bind someone who is not signing the contract?
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Rights & Conditions #
Contracts can grant the right to do something. You may do it if you choose but are not required to do it. These rights can be conditioned on something else occurring before you may exercise the right. There could also be circumstances where you lose or transfer a right. Things to look for:
- What rights are being given to you? What can you do if you choose?
- What rights do you give up?
- Are there circumstances where a right you have, or will be given, could be taken away?
- What rights are being given to someone else? What can they do if they choose?
- What rights do they give up?
- Are there circumstances where a right they have, or will be given, could be taken away?
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Obligations & Conditions #
Obligations are things you must do (or refrain from doing). Failure to do them would be a breach of the contract. Things to look for:
- What must you do?
- What must you not do?
- Are there conditions that must be met before you are required to do (or not do) something?
- What must other people do?
- What must other people not do?
- Are there conditions that must be met before they are required to do (or not do) something?
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Ownership #
This could be addressed under rights and obligations. However, because intellectual property is part of the lifeblood of business or the entertainment industry, it deserves its own category. Here we’re talking about things like copyrights, trademarks, patents, and right of publicity. Each of these property interests comes with bundles of rights that can be shared or given away. These rights affect not only who can do what with an asset, but also where the money goes. Make sure that if something you created or are going to create is at stake that you don’t just give it all away. Things to look for:
- Who owns your work and associated rights?
- Is this a work for hire, or do you have some ownership interest in the finished product?
- What ownership rights are you giving away?
- What ownership rights are you retaining?
- What property interest or ownership rights are you gaining?
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Money #
A contract involves an exchange of something of value for something of value. Frequently this involves money. Things to look for:
- Who is paying and who is receiving?
- What does the person/entity receiving the money have to do to be entitled to payment?
- How much money?
- Flat sum, installments, or variable based on specified criteria?
- What are the criteria for determining amount of payment? What variables are within your control and what variables are outside of your control?
- When will it be paid?
- How will it be paid?
- Is money specified as a penalty for failure to follow some provision of the agreement?
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Time #
When we talk about time, we are talking about duration (whether you’ll be bound for a limited time or bound into the afterlife), and timing (when does what happen). Things to look for:
- When does the contract start and when does it end?
- When do you have to do what you’re agreeing to do?
- When do(es) the other party/parties have to do what they are agreeing to do?
- How long will any transfer of rights be effective? Will there be a reversion at some point in time?
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Termination #
Sometimes a party might want to get out of a contract before it has been fully performed. What happens then? You’ll want to know whether you have a safety net or whether you could fall to your doom. Things to look for:
- Are there any provisions about terminating the contract early?
- Under what conditions can a party terminate the contract?
- How do you terminate the contract? What is the procedure (timing, written notice, etc.)?
- Are termination provisions more favorable to them than to you?
- What consequences are spelled out in the contract?
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Consequences & Remedies #
There are consequences for breaching a contract. Some of these are established by law, but consequences may also be specified by or limited in the contract. Things to look for:
- What remedies do you have if another party fails to do what they agreed under the contract?
- What are the consequences if you don’t what you agreed to do?
- Does the contract limit the remedies you might otherwise be entitled to if you had to go to court?
- Is there an arbitration clause that restricts the ability to go to court?
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“That Ain’t Right.” #
If something seems one-sided or feels “off”, it probably is. However, “unfair” does not automatically equate to unenforceable. A contract can be quite one-sided and still be legal. Sometimes it is simply a matter of unequal bargaining power, and you must weigh the benefits of what you’re getting against what you’re giving up. Sometimes the contract was poorly drafted and needs to be cleaned up. On the flip side, there are times when someone is genuinely trying to bamboozle you. If something feels wrong, question it. Never compromise your core values. And, if something seems off, have a competent lawyer review the contract before you agree to its terms. Things to look for:
- Does something feel wrong or uncomfortable?
- Does the contract feel overly one-sided?
- Do the benefits outweigh the negatives?
- Will signing the contract help take you where you want to go while staying true to your values?
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What’s Missing? #
Make sure you are getting what you bargained for. Sometimes what is left out of the agreement is just as important as what is included. However, unless something you wanted is obviously left out, this can also be one of the most difficult issues to spot. One way to identify whether something is missing from the contract is to think of scenarios that are likely to occur. Does the contract clearly address everyone’s rights and obligations in that scenario? If not, something might need to be added to the contract. If the contract addresses it, but you’re confused about what is supposed to happen, then the contract might need to be modified to make it clear. Things to look for:
- Is everything you wanted addressed included in the contract?
- Does the contract accurately reflect the terms discussed?
- What happens if _______________________?
Bonus: Don’t Rely on Headings #
Contracts will often include headings for convenience in finding information. This can be very helpful, but it can also lull you into a false sense of security. Something you think would logically be under one heading might be found somewhere else. Important terms are often miscategorized, whether due to complexity, poor drafting or by deliberate subterfuge.
