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Carl Kanowsky: Contracts deciphered, part one

It’s The Law

Posted: January 13, 2011 10:06 p.m.
Updated: January 14, 2011 4:55 a.m.
 

You’re about to sell your business, buy some property or you’re about to hire a new management employee.

Whatever — but you are in a situation where you’re about to begin negotiations for some form of a contract.

This three-part guide identifies some of the basic elements of most contracts, and some of the traps for the unwary.

All contracts are based on an offer, acceptance and consideration.

In other words, in the case of a sale, the seller has made an offer to sell, the buyer wants to buy and the parties agree how much it’s going to cost.

Offer
Whether you are the one offering to sell something or the one who wants to buy, make sure you are clear as to what you are willing to pay or do to secure an agreement.

Itemize all the important elements here: What’s the price, when is it going to be paid, do you have to do anything to secure the sale and, if so, what?

Regardless of what you are negotiating for, do not give up too much, and do not be afraid to walk away.

Acceptance
Imagine you are the seller, and you have made an offer to sell. The prospective buyer has responded.

One of the first questions to ask yourself is whether your original offer has really been accepted, or if the buyer’s response is actually a counter offer.

Have the terms of the original offer been changed, modified or even ignored? If so, then you may have a counter offer.
If that is true, then you will need to respond.

It is important that the parties have the same understanding and agreement about the essential terms of the deal.

Do not assume that merely because a term or condition was in the original offer that it is automatically in the counter offer.

Consideration
How much will this contract cost? That is the consideration.

Cost can mean how much money is being paid, the cost of services to be performed or the things to be given up. Whatever it is, it should be crystal clear.

For instance, if you are buying a business, you and the seller must agree how much you are paying for it. You need to also have agreement as to when the payment is to be made and if there are any conditions that must be satisfied before payment is made.

If the consideration is being split over a period of time, then know what the schedule is for the payments.

If you are a contractor, know exactly what services you must provide to receive payment.

You’ll also want to be specific about things such as any money being held back until all the work is done, how to deal with a request for additional work and outlining the schedule of payments.

These issues may seem so fundamental you don’t need to worry. But unless you and the other side are very clear on these terms, it can lead to problems later on. These three elements lead to so much litigation later on, keeping lawyers like myself employed.

Don’t be timid, and don’t assume anything. The next article will address performance, time and dispute resolution.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by e-mail at cjk@kanowskylaw.com.  Kanowsky’s column represents his own views, and not necessarily those of The Signal. It’s The Law appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. www.SCVbar.org. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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