HOUSTON BUSINESS REVIEW

CYA: BEWARE OF THE KILLER CONTRACTS!
By Shahara Wright

Shahara D. Wright, Business Law Attorney, "Serving businesses from start-up through expansion". You can cantact her by: calling her at (281) 980-2040, sending her an e-mail or visiting her website. For more information concerning Shahara Wright click here

. I cannot count how many times I have encountered clients with contracts that are worthless. I am often approached by business owners who have prepared or signed contracts which they thought would protect them but did not. Whether it is promissory notes, purchase agreements, service agreements, or anything else that requires a commitment, I can always tell when there was no attorney involved.

The main problem with these contracts is that people do not understand the purpose of such contracts and why they are needed. Often, clients state that the “deal is simple”; or “there is not much to it”; or “I know this guy, we won’t have a problem”. Contracts are not for the deal that doesn’t go wrong, it is for the deal that does. If you do not plan ahead of time before the deal is made, you are sure to encounter some type of problem, eventually.

When entering into a contractual agreement, always consult an attorney. I say that not because I am an attorney but because you need a third party to look at some issues that you may not consider. Attorneys that specialize in business law know that you plan for the “breakup” the “in cases” or “what ifs.” In case Bob does not do what he said he was going to do, what happens? What if Bob forgets when he is supposed to deliver the goods or does not deliver the goods on time?

You also need to know who you are dealing with. Is this a corporation, partnership, individual, or some other type of entity? Does this person have sufficient assets to pay damages if something goes wrong? Many times, businesses enter into contract where the other party does not have any assets or is on the verge of going bankrupt. Because, they have not done proper investigation, they are usually left holding the bag when something goes wrong. Even if you have a contract where clearly, you are right and they were wrong, it does not matter if there are no assets for you to recover.

Here are some things to do when entering into a contract. (1) Do your research on the deal and the person you are doing business with. (2) If it is a significant deal (one that you cannot afford to be on the loosing end on) you need to consult an attorney as soon as possible. (3) If the other party has drafted the contract get an attorney to review it. Have an attorney that is experienced in business matters (not all attorneys do the same thing), and involve them in the negotiating process. The cost of hiring an attorney at this point can save you a significant amount of money in the long run if things go bad. (4) Be clear about your roles and responsibilities as well as the other party’s roles and responsibilities. You need to make sure that the contract accurately reflects the deal. (5) If it is a loan or some type of finance agreement, get financials! (6) Most of all be willing to walk away. Some things are too good to be true.

Nothing in this article is intended as legal advice and you should consult an attorney before making any decisions.