Worldwide University

Introduction

In almost all businesses, you will need to negotiate and enter into contracts and monitor compliance with them. In any business, you will have contracts for telephone, Internet usage, premises, suppliers, insurance, etc.

For the purposes of this section, they will be called "agreements", but the preferred term varies from place to place and from time to time. In some jurisdictions, they may need to be notarized and/or registered.

Many contracts are not written down, because they are already governed by common law and legislation. Simple purchase is the best example. The vendor offers something for sale at a price, you agree to purchase and pay the vendor, the vendor accepts the payment and provides the goods in good order. End of contract.

On the other hand, if you don't get the goods at the time you pay for it, you should have something in writing.

Some contracts are very simple legal documents, such as invoices.

You will often be required to inform people of their legal rights and responsibilities as part of your duty to the public and your clients.

In many jurisdictions, however, you cannot give legal advice unless you are admitted to the bar as a lawyer, and can be prosecuted if you do. (And if you do give any kind professional advice, you probably should have professional indemnity insurance and accompany it with appropriate disclaimers.)

About written agreements

All agreements must be between at least two parties. The parties should be legal entities. Legal entities are individuals and incorporated bodies (such as incorporated associations, companies, etc.). The most obvious case of a party that is not a legal entity is an unincorporated association, which is legally very messy if anything goes wrong.

An agreement is meant to be binding and can be enforced by courts under common law. If infraction of its terms causes loss to one party that can be quantified in money, then suing is a possible course of action.

A judge may find that an agreement is not binding if a signatory was coerced or deceived into signing, or if one party could not reasonably have been expected to have understood it.

However, the signatory is generally responsible to read and understand what they sign, and if they sign it without proper reading, they are still expected to abide by it.

As a general rule, read it first and don't sign unless you are satisfied that you understand and accept all terms and conditions. If in doubt, get advice.

The agreement should cover all reasonably foreseeable eventualities in the area that it covers. If it’s not written in the agreement, then it's not a commitment and you can’t enforce it.

Agreements often use the words "whatsoever," "wheresoever" and "howsoever" to make sure that all cases are included in a statement. They sometimes use the word "absolutely" to make sure that something (e.g. ownership) is not subject to any hidden conditions.

You must remember the terms of the agreement in detail. If you are in business long enough and use the agreement with enough people, you will need to enforce everything in it sooner or later, especially in situations that you might not have envisaged. (Scary thought.) In many cases, clauses will have particular ramifications, some of which may not have been written (or even understood) in full. (Another scary thought.) So it is worth getting the wording right before you sign.

What an agreement cannot do:

Your agreement cannot commit another party to the terms of the agreement if it does not sign in agreement.
You cannot change legislation with a contract. If a law says something is your responsibility, signing a piece of paper cannot make it someone else’s responsibility.

Contents: What's normally in an agreement?

Beginning

The names and addresses (and any other necessary identifying information) of the parties to the agreement.
The purpose of the agreement.

Main part

(This is usually the largest part of the agreement.)

The terms and conditions of the agreement, such as the responsibilities involved.
Relationship to any other lists of regulations that one party is requiring of the other.

Final section

Date of signing, which will be the date of commencement unless otherwise stated.
Signatures of both parties. If they are signing on behalf of organizations, then they should have delegated authority to do so.

Other general arrangements

More complex agreements are likely to have many of the following clauses. They often follow a fairly standard wording.

A review date in the future, including a way change the agreement.
A clause stating the extent to which it is binding.
A clause stating any fees (and what the fees are paid for) relating to the agreement. If there are no fees, then it should state that.
Relationship to any previous agreements. If it is pursuant to another agreement, you should identify it clearly. If it is not pursuant, then you should state that all agreements of any kind, written or implied, don’t apply. Some agreements also state that the terms of the agreement are those written in the agreement and no other.
A dispute resolution process that you would go through before any court action.
A clause stating penalties (and often limits to penalties) for infractions.
A clause stating that any costs incurred in recovering debts must be covered by the person who should have paid.
A closing date if necessary, perhaps with a procedure for renewal.
Indemnification, that is committing not to sue each other, or not to sue over a certain amount.
Several sections to close loopholes:

Organizations usually have an ultra vires clause, stating that the agreement still stands if there is subsequently found to be a defect in the organizational procedure appointing a signatory. (This closes a loophole that people can use to get out of agreements.)
Notices, that is, what is considered adequate communication from one party to another. (For example, if you send them a letter and they've disappeared, the letter still counts as informing them.)
A statement that if a court rules that part of the agreement is invalid for some reason, the rest stays in force (to close the loophole that the whole agreement could be cancelled.)
A jurisdiction clause. This states that the agreement will be interpreted under the laws of a particular state or country, to close the loophole of being taken to court somewhere else in the world.
A statement of which terms of the agreement will apply indefinitely (e.g. if the agreement ends, debts must still be paid.)

Negotiations

With thanks to Brett Mabury

Certain fundamental strategies will help you in the day-to-day negotiation that all businesspersons perform, in contracts and other business transactions.

Here are a few tips and suggestions to get you started on the road to effective negotiations.

Always have clear objectives. It helps to make a list of goals before meeting the other party.
Go to a negotiation having done your research. Know relevant laws, facts, and figures.
Consider what you really need to get from the other party, and what you would be willing to compromise.
Build trust with the other party. It will make communication easier.
You may want to have an outline (and perhaps a first draft) of an agreement written before meeting with the other party.
Try to keep the discussion ordered when meeting with the other party. Before the meeting, make a list of topics that you need to cover during the negotiation.
Focus on issues, not personalities. If you have to deal with persons you don't like (or those you do like) it is tempting to let your thoughts about that person influence your behavior. Focusing on your goal and treating everyone as an equal will help matters become resolved in your favor. By treating all fairly you will avoid simmering about grudges or worrying about feelings. which can be an obstacle in your success.
Listen to the other party and their concerns.
Don't be afraid of the hard questions. You need to ask them

Clarify the requirements of both parties to the agreement, especially special provisions needed. Consult the other party to identify their requirements of the agreement and ensure that all parties understand what the other parties require from the agreement

Check whether the agreement is straightforward or whether you need specialist legal advice. If you are a non-profit community organization, legal help may be available with no fee.

Drafting tips

With thanks to Brett Mabury

Drafting some business agreements is simple enough for the ordinary person, while others require the help of a lawyer.

In either case, you want to be confident that you have negotiated the best terms for your business, and have a good agreement that will prevent any dispute or potential litigation.

Below are tips on negotiating and writing a sound business contract.

Even if you rarely draft your own contracts, the basics of contract drafting can help you to be more confident in all kinds of business writing, and will also help you when you review and interpret contracts to which you are a party.

An effective contract should always be clear, specific, and focused.
Sentences should be short to avoid unnecessary complexity and ambiguity.
Look at sample agreements before drafting your own.
Make sure all party names are accurate. Include their business titles if applicable.
A contract should be consistent in its tone, grammar, word usage, and abbreviations.
Outlining the contract can make it clearer and easier to quickly refer to certain clauses.
Define important terms.
Anticipate litigation by including sections regarding mediation, place of jurisdiction, and attorney fees.
All parties should sign the contract, including business titles if applicable.
All parties should get a copy of the contract.
Pages should be numbered. Avoid the appearance that pages could have been added after the agreement was signed.

Policy

A satisfactory policy means that you don't have to go to the Board each time you need to sign an agreement.

Your organization's policy might specify:

who is authorized to issue agreements
who is eligible to have agreements with you (i.e. the conditions they must meet)
any "standard" contracts
schedules of fees
payment procedures
what items are free for negotiation and adjustment, and if so, within what bounds
disclosure of any conflict of interest
risk management
compliance monitoring procedures
procedures and penalties for non-compliance
etc.

Complex negotiations

Use a professional manner because you need to take it seriously. But it is important to get people on side, understand what they really want, and put them in a win-win relationship with you.

Besides. in some situations they may depend on you for advice and you need to be very fair.

The upper hand

In general, the side that writes the agreement has the upper hand. It calls the shots because it sets the agenda. They also better understand the ramifications of what they have written. If you can, do the contract yourself. By being realistic and fair in protecting the interests of all sides (not just your own), you will gain greater trust and increase the chances that other parties will accept it.

Everybody protects their own interests when they write a contract. As someone once said of a musician’s recording contract, only one page said how much they got paid. All other money pages were about items for which they could not claim payment.

Trust

Size up the people. Can you trust them? Can you work with them? You will want to estimate how much you trust the other party. An agreement with someone you trust might be a little different from an agreement with someone you don’t, although you still need get the agreement right so you can enforce it.

If you really distrust the other party to keep their end of the bargain, you should probably not have an agreement with them at all. The agreement won’t help if the costs of legal recourse are greater than writing losses off as a bad debt.

Size yourself up

If you are trying to license out a product of some kind, ask yourself the following:

Do you know exactly what product you are trying to license out?
Find out what prospective clients really want. It may be quite different to what they appear to want, and some people just don't know.
How free are you to negotiate details? It may be better to calculate the profits and conditions and include the variables. Then offer a fixed product.

Identify roles

Identify the parties e.g. client, event manager, performers, performers agents or managers. Then define their interests and motivations. In some cases, it might only be money, but other factors can also play a part in the negotiations (e.g. strategic advantage).

Then ask, which parties are

in win-win relationships?
in consumer-supplier relationships?
in consumer-monopolist relationships?
in controller-controllee relationships?

The role of experience

How much experience have the different parties had? Don’t be naïve, overly trusting and over-optimistic.

Experienced people may better understand the written contract itself and its ramifications. They may have memories of unusual cases or know of legal precedents in courts. They might better understand the market, including trends, competition, market value and value factors, risks, and actual costs (some of which are hidden). If you do not yet have this knowledge, you need to get it by getting good advice and through research.

Traps

Three traps in particular need mentioning.

First, beware of "bait" in the negotiations. For example, a music company might be negotiating a contract with a musician for a tour. The company might orally offers a record contract on completion of the successful tour to get the musician to accept unfavorable contract terms. But the recording deal is just bait; it's not written into the tour contract. If the musician takes the bait and accepts the contract as is, he or she has unfavorable tour contract terms with no recording deal.

Second, beware contract conditions hidden in long paragraphs of fine print. They are easy to miss, but are still binding if the contract is signed. If you are writing the contract, make sure that all terms and conditions are clear enough and that the other party has sufficient time to read and understand them.

Third, be cautious of agreements that do not have fixed conditions. A few have clauses that give one party the right to change the conditions of the agreement at any time simply by informing the other party. For example, banks normally have such a clause in their agreements, because they envisage a long-term relationship that will change over time. Obviously, however, these clauses can severely disadvantage one party. At best, they should also include a way that you can leave the agreement without penalty. In general, be suspicious.

Get specialist legal advice. Unless you are quite sure what you are doing, you should get legal advice on the terms and conditions of the agreement and legislative and regulatory requirements. Adjust the agreement as required in light of the advice received and ensure that variations are confirmed with relevant parties.

Drafting an agreement

Write down clear notes, but don’t try to draft a formal agreement straight away in an early discussion. Unless it is a standard kind of agreement, it will take some time to think through the implications and potential problems, and to get the wording right. Run your drafts past decision-makers until you get it right.

Define exactly what each party will do and expect under the terms of the contract. It is not a shared wish-list; it is what you are committed to doing.

What direct benefits are binding? What indirect benefits and obligations might come through the contract? Check whether any supporting agreements or insurances will be necessary. Explore the "What if?" scenarios, and have a solution in place for each of them.

Legislative requirements

Ensure that the agreement complies with legislative and regulatory requirements (e.g. copyright, intellectual property, anti-discrimination, and industrial awards).

Sign or stall?

When both sides are ready, xplain to all parties to the negotiation of the terms and conditions of the agreement, and any legislative requirements. Clarify any points that are not fully understood.

Give people plenty of time to read it and get explanation from you. Check whether you need to explain it to anyone else. Check that they are satisfied that they fully and correctly understand it and agree to it. Renegotiate any details, for which you will probably need your organization’s approval before you sign. Sign the agreement and make sure each party gets an identical original copy.

Don't just discuss agreements with prospective clients. At some point you need to close the deal, that is, ask them to take sign. And then get them to sign. A positive answer is good, but it doesn't mean all that much until they actually sign.

When should you stall? Do not be rushed into signing a contract that you do not understand and about which you are not yet sure. It is better to miss a "golden opportunity" if you are unhappy with the contract. You can simply walk away if you haven’t yet signed.

Contracts and agreements