Tips for understanding a contract

The simpler and more straightforward an agreement is, the better — because litigation is stressful, expensive and time consuming.

Some people are afraid of, averse or allergic to contracts. To remedy this, it would be good to understand the concept of what a contract is and its significance in practical terms. The law defines a contract as “the meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.”

This means that a contract is an abstract concept. It is not just a piece of paper signed by parties after agreeing to certain terms and conditions. It is a meeting of the minds. The document therefore is merely evidence of the contract. Since this document represents the intention of the parties, it should be as accurate as possible.

The following tips are some of the things that may be helpful in putting an agreement in black and white. Most of these come from best practices in contract review and management. However, they are in no way intended to substitute for or serve as legal advice.

1. Deal with the right person.

An essential element of a contract is consent. It is the conformity of the wills of the contracting parties, and is manifested by the meeting of the offer and the acceptance upon the thing and the cause of the contract. Such consent must be given freely by a person who is capacitated. Unemancipated minors, persons below 18 years old, insane or demented persons, and deaf-mutes who do not know how to write may not validly give consent.

In the case of a corporation, a representative of a corporation must be duly authorized by the board of directors by a resolution, certified by the corporate secretary. Members of a partnership must likewise be duly authorized by the other partners. A sole proprietor, on the other hand, represents the business registered under his or her name.

2. Confirm the terms.

A lot of changes happen during the negotiation and drafting stages of the agreement. Prudence dictates that the parties review all proposed terms carefully to ensure that the fundamental agreements appear in the final instrument.

3. Do not delegate the task to another person.

An agreement drafted by someone other than the persons involved in negotiations may alter the intention of the parties. Basic accords may be excluded. Modifications to proposals and counterproposals may be missed. Worse, you may get stuck with the results for failing to catch essential terms and conditions.

4. Review the agreement carefully for accuracy.

Read beyond the wording of basic terms. Sometimes, an additional term or twist of a phrase can change the expectations, responsibilities and enforcement. The general rule in the interpretation of contracts is where the terms are clear and leave no doubt about the intention of the parties, there is no room for interpretation and the literal meaning of its stipulation controls.

5. Be certain that the agreement terms are specific.

Avoid loopholes and watch out for them. Dates, times and specific expectations should be as unambiguous as possible. Words that have various meanings must be construed in that sense which is most consonant with the nature and object of the agreement. Various stipulations of a contract must be interpreted together — the contract must be read and construed in its entirety. Words, phrases and clauses cannot be segregated and given a meaning that is contrary to the terms of the entire document.

Designating headings for convenience is a good practice. However, these designations are not necessarily controlling if the provisions themselves show a different intention. The title of the instrument is also not controlling if the intention embodied in the instrument contradicts the title.

6. Strive for simplicity.

Clients usually refer contracts to lawyers and request for the latter to “make it legal.” As a rule, the object of a contract may be a lawful subject matter not outside the commerce of man including future things. Also, rights which are transmissible and services not contrary to law, morals, public order or public policy may be the object of a contract, but not future inheritance except in cases authorized by law.

What clients really ask is for the lawyer to prepare an instrument couched in legalese or in legal form as if it would add more value to the agreement. The truth is, the simpler and more straightforward an agreement is, the better. While legalese is sometimes necessary to remove ambiguity, there are times when it serves to create a legal document so incomprehensible that no one can make heads or tails of its intention or function.

I prefer to avoid using archaic legal jargon as much as possible. I would rather use clear and concise language. I prefer to present the meeting of the minds of the parties in an elegant manner.

7. Be certain to make the agreement operational.

Parties to a contract must look forward to when the agreements are to be executed. As much as possible, indicate a starting time or when the contract will take effect. Equally important is specifying a termination date, if applicable.

8. Include provisions and contingencies for compliance.

A party may have good and valid reason for not completing an obligation. The contract should address such a contingency and detail how compliance with the terms can otherwise be achieved. Simple breach or minor delays that do not prejudice the parties may be resolved without terminating the whole agreement.

Parties can stipulate that notwithstanding any delay, breach or contravention of the terms and conditions of the contract, neither of them shall exercise any available right because of any default of the other. The defaulting party may first be given a period after written notice to the non-

defaulting party to cure any default otherwise, said party may exercise and enforce available legal rights.

9. Include provisions for change.

It would be good to look ahead and recognize that things change, times change and conditions change. It would be advisable for parties to have contract that provides for contingencies that keeps agreements viable and enforceable. A clause that states that the instrument embodies the entire understanding between the parties relating to the subject matter and allows for modifications, renewals or extensions, provided these be made in writing covers for such contingencies.

9. Include provisions for handling potential disputes.

Every person entering into a contract should act in good faith. But due diligence also dictates that you have an eye out for litigation since the possibility of disputes exist in all cases. Litigation is stressful, expensive and time consuming. It would instead be good to explore alternative dispute resolution mechanisms like mediation and arbitration. Stipulating the dispute resolution mode and even the venue of possible lawsuits is therefore advisable.

10. Make the final draft the final goal.

The final written agreement is the goal of negotiations. Think of and approach the memorializing of every negotiation as the most important part of the process. Once the minds of parties meet, the contract becomes the law between the parties. Once an instrument is signed, it becomes evidence to such meeting of minds.

11. Call your attorney.

A diligent and prudent person who intends to forge an agreement with another will consult or refer the matter to a competent attorney of his choice. On the other hand, a person who gives consent freely without the benefit of sound legal advice assumes a certain degree of risk. In fact, any cost intended to be saved would be set off by unnecessary expenses due to faulty contract drafting and preparation.