There are many forms of contracts. Some are simple; some are complex. One thing is for sure. They are all governed by law and, accordingly, it is important to understand the applicable contract law to make sure you protect your interests. It is common for smart people to enter into bad contracts and be burned because they did not appreciate the 'small print'. Don't fall into this trap! Learn how to negotiate a contract before signing one.


What is a contract? It is a formal agreement between legal entities and enforceable under the governing law. Confused already? What is an entity? What is meant by governing? You are already learning the first of three basic rules:

Rule #1 Make sure you have any but the simplest contracts reviewed by someone practiced in reviewing type of contract you are considering. Contracts are binding on you and you do not want to breach one. Litigating resolution can be more expensive than performance under the terms of the contract. Professionals know how to negotiate contracts because they are aware of the nuances of contract language, the applicable law. They are there to protect you.

Rule #2 Insure both parties understand the deal points. Once you reach a mutually acceptable agreement, preferably in writing, you are ready to go to contract. Then, when reviewing the contract look for each deal point, verify it says what was agreed to, and make sure that there isn't conflicting language elsewhere in the contract. It is in the small print that disclaimers are found that set aside obligations of one of the parties to the contract. Make sure such 'outs' are flushed out and resolved. When there is a conflict you can go back to the original letter of intent or business agreement to point out the discrepancy. If the other person reneges or changes his or her position, you will want to consider carefully if you want to even enter into a contract with a person you may not be able to trust.


Rule #3 Take your time before signing a contract. Contracts need to be read and digested. Many will need to be reviewed by professionals. Do not allow yourself into signing one on the spot unless you are completely comfortable with the content of the document. An example is a lease for a car. Once you have reached an agreement on leasing a vehicle, the business manager will be throwing tons f paper at you claiming it is just routine. He or she is right, it is routine to him and the car company but not to you. You have every right to collect the documents and have them reviewed. If they object, take your business elsewhere. A legitimate company will not object. They may say the 'deal' may not be available if you take the time to review the documents but that is very likely just a sales ploy to get you signed up before you change your mind.

To understand how to negotiate a contract you can research standard contracts and language in a number of ways. Often non-lawyers are well advised to take a course on contract law or attend a seminar in the field pertaining to contract preparation. While this won't make you a professional, it will help you to know what to look for when presented with a contract. Remember that even your hired professional might miss something. You, as the party signing the contract, are responsible for reading it carefully and understanding each clause before putting pen to paper.

You should understand contracts and the language used in them. View my article on the best contract drafting books on Amazon: The Currency of Negotiations