You know the phrase “hindsight is 20/20?” I’d be willing to be that the person who came up with it had probably just signed a terribly written contract without reading it.
You know the ones I’m talking about. The long, drawn-out written contracts with little bitty paragraphs that require examination under an electron microscope just to read them. Yeah, those are everywhere and they can get you into quite a bit of trouble….if you’re not careful.
But the truth is, we’re not careful-we’re human. We are (and I firmly believe this) inherently trusting. A smile and a gentle pat on the back is all many of us need to unknowingly sign our life away.
But not to worry. It happens to the best of us (even attorneys). But I’m here to tell you that hindsight doesn’t have to be 20/20. With just a bit of knowledge, you can turn the 20/20 vision of hindsight into the 20/20 vision of foresight.
So, the next time you’re presented with that 15-page contract (or any contract for that matter), here are 5 things to consider first:
1. HOW MANY SIGNATURE LINES ARE THERE?
This is the first thing to watch out for in any contract. How many signature lines are there?
If you’re given a contract to sign and the only person that is required to sign it is you, watch out. You need to have that document forensically examined first.
Contracts with only one signature line are usually offeror friendly (and I mean really offeror friendly). These contracts will will be, what I refer to as, 95/5 agreements. Meaning that 95% of the contract benefits the other party (which is usually a company or corporation).
2. IS THERE AN “ARBITRATION CLAUSE?”
Arbitration is a form of alternative dispute resolution. It is, more often than not, defendant friendly.
This means that if you have to sue over the other party’s potential breach, you wont be headed to a court room where the rules of evidence and procedure apply. You’ll likely be headed to a conference room where you’ll sit across from the other party.
A neutral ‘arbitrator” will decide your fate from there. In other words, you wont have a jury of your peers making the decision. You’ll likely have an arbitrator whose handled similar cases in the past making your decisions.
3. IS THERE A “WAIVER” CLAUSE?
You want to look over the contract and see if the other party has placed any language in it that, by your signing the document, results in your waiving your right to enforce the agreement in the event of a breach.
The law places quite a bit of restrictions on a person or entity’s ability to waive a breach, but these clauses do exist. You have to be careful to make sure your contract doesn’t have one of these clauses.
Sometimes these clauses will have the following language: “By signing below you agree to defend and hold harmless [name of the other party]. A clause like that means that you can’t hold that party liable.
4. IS THERE A “CHOICE OF LAW” PROVISION?
This clause can bite you. Choice of Law provisions in contracts are pretty common when you’re dealing with large companies whose headquarters or principle place of business is in another state.
This clause means that even though you can file the suit in a Tennessee court, the court will have to apply the law of the state mentioned in the choice of law provision. This isn’t automatically detrimental to you, but it certainly can be.
If you have to sue over your contract, you want Tennessee law to apply.
5. IS THERE A “CONSENT TO JURISDICTION” CLAUSE?
This clause is similar to the choice of law provision. The big difference, however, is that a “consent to jurisdiction” clause means that whatever state is mentioned in the clause is the state may end up handling a lawsuit.
This means that even though you signed the contract in Tennessee and even though the other the breach occurred in Tennessee, you may nevertheless be forced to travel to another state to defend it.
Trust me, you don’t want to have to go to Nevada, for example, to defend a breach of contract action that occurred in Tennessee. The time and money alone that it would cost you could be fairly substantial.
So these are 5 really important things to watch out for the next time you sign a contract or agreement. A good habit to get into before signing anything is to request time to have an attorney look over the document first. If the other party wont agree to that, then you have no business entering into an agreement with them.
Good Legal Health.