Contracts 101: Why Understanding the Nitty-gritty of Every Contract Is Essential

Couple reading through the contract

A contract is a fact of life. We draw up a contract when we hire a wedding photographer. We negotiate a contract when we build our house. We ask for a contract when we purchase an insurance policy. Whether we want it or not, we need to learn how to read, understand, and negotiate a contract.

A contract, for example, would tell a shipping business about the likelihood that its charterers liability cover will protect it from damage and other types of injuries that might be incurred during the use of the vessel. In a life insurance policy, a contract will stipulate the scope and limitations of the policy, especially as it concerns the payments that will be made to the beneficiaries in case of the policy owner’s death. But the need to understand the contract terms goes beyond the simple terms and conditions, as well as coverage. There are tiny details in a contract that when overlooked can lead to the cancellation of the agreement.

Complete Personal and Contact Information

It may be fairly obvious that you should check that the complete names and addresses of both parties are indicated in the contract, but this actually one of the most overlooked details in any agreement. The wrong name will invalidate the contract. In case of a suit arising from the violation of any terms in the contract, you may lose the case because your names or the names of the other party have been misspelt.

Rights and Responsibilities

These are typically not found in one portion of the contract. Rather, they are scattered all around the agreement. Make sure to read the contract inside and out to understand who will be responsible in case something doesn’t happen according to the agreed terms.

Cancellation Policy

You would want a way out of the contract if the terms were not to your liking anymore. That’s why it’s always advisable to renegotiate the contract—unless it’s life insurance—every now and then. This will allow you to update the terms and conditions of the contract according to what suits you at that stage in your life or business.

Dispute Resolutions

This part will determine how you want certain disputes to be handled. Disputes happen when terms in the contract are not met by the other party or when you make a claim that does not fall within the agreed-upon terms. You may want to consider a mediation or arbitration requirement because this can save you a lot of time and money instead of going to the court to resolve an issue.

Annexed Documents

Lease agreement contract sheet and brown pen at bottom right corner on wood table background in vintage style

If there are documents attached and related to the main contract, do not forget to read it. Ask questions if there are things that aren’t clear to you. Never assume the content of incorporated documents. You might be giving up the rights you clearly stipulated in the main contract.

Before entering into a legal agreement, you may want to hire a lawyer who can help you understand some hidden things in the contract that only a professional can see. Depending on the nature of the contract, you can hire a general lawyer or someone with a specialization in that field. Legal documentation requires analysis, so taking precautions before signing the deal is the most practical thing for you to do.

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