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Carl Kanowsky: Contracts deciphered, part two

It's The Law

Posted: January 20, 2011 8:00 p.m.
Updated: January 21, 2011 4:55 a.m.
 

Following up on Jan. 14’s article, you are in the middle of negotiating a contract for any number of possible different scenarios, including selling a business, buying property, or conducting some kind of other business.

If you followed the first article, you and your counterpart in the negotiations have agreed upon an offer, acceptance and consideration. Essentially, you nailed down the price being paid and outlined some of the basic terms. 

Now, the two of you — hopefully along with your respective attorneys — are set to determine “performance,” “time” and “dispute resolution,” among other terms.

Performance refers to questions such as: “When and where is performance required?  Do both parties agree as to what is acceptable performance?”

Time can mean many things, including: “Time for performance, payments, delivery, etc. Is there a penalty for taking too long, and is there a reward for performing quickly?”

And dispute resolution is about choosing different and perhaps unique methods for solving any arguments between the parties.

You probably think these are simple, straightforward issues that shouldn’t require a lot of time to consider. However, experience proves otherwise.

For instance, talking about performance, let’s assume you are hiring a contractor to paint your house, inside and out. 

Have you agreed as to what’s acceptable performance? Do the two of you concur on the type and quality of paint to be used? Have you discussed what’s supposed to happen with the furniture inside the house? Who’s going to move it?
What about covering it up?  Will the old paint be sanded away first? How many coats of paint will be applied? There are a number of other issues, but this gives you the idea.

If the two of you don’t agree on these terms beforehand, then you will probably wind up fighting about them at the end.

Sticking with our painting contractor, have the two of you really resolved the “time” question? Will you pay some money up front and make periodic payments? What triggers the periodic payments? When will the work begin and when will it be finished? What hours and days will the contractor work?  Is there anything you can do as the homeowner to encourage efficient work and discourage laziness? Have you talked about paying a bonus if the work’s done early or a penalty if it lingers too long? Are there any acceptable excuses for delaying work?

Finally, have you given any thought as to how the two of you might resolve your differences if any arise? Have you agreed that you will arbitrate rather than going to court? Have you determined how the arbitration will be conducted and who will pay for it? Have you established methods that both of you accept as the way to let the other know that there’s a problem? 

One suggestion I often have is that the parties should agree on going to mediation before suing each other or demanding arbitration. This can short-circuit expensive and unnecessary litigation. Mediation is a method where an independent third party (hopefully knowledgeable in the area in dispute) meets with both sides and tries to help them come to an agreement. I have found many times that having a neutral party explain the other side’s case helps my clients and me better appreciate the other person’s perspective and can lead to a fair settlement for all.

Once you’ve determined these six terms, you’re almost done. 

The three remaining significant terms that generally always come up in any contract negotiations are: liability and
indemnity; representations and warranties; and signature or execution.

In every contract negotiation, there are always some problem areas specific to that particular contract. But if you go into a negotiation already having decided where you want to be on these nine issues, you will save time and quickly determine if these negotiations will result in a contract you can live with.

Carl Kanowsky: Contracts deciphered, part one” ran last week.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by e-mail at cjk@kanowskylaw.com.  Mr. 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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