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How to Read a Contract

Reading and understanding a contract can be daunting, especially when the contract involves a large life or business decision. There are many different aspects to a contract that must be taken into consideration, and it is important to thoroughly understand and be able to negotiate each in order to thoroughly meet your goals and needs. Before you make the decision to contact a lawyer, there are certain steps that you can take to ensure that you are covered:

1. Read the Contract: Although this may seem like an obvious first step in the process of reviewing a contract, it is important to know that you will need to read the contract more than once in order to fully understand all of its terms and provisions. As a general rule, it is best to read a contract at least three times in order to make sure that you fully understand it.

Reading 1: In the first reading, look at the contract from a high-level to determine the scope of the contract and what is at stake. If the stakes are high, you may want to contact a lawyer to ensure that your best interest is taken into account and to help you negotiate any terms that you don’t agree with.

Reading 2: During the second reading, read the contract with more focus on the details. This time, look at the defined terms in the agreement, make sure that you understand what each term means, and determine whether the terms make sense in the manner they are being used. Also, thoroughly review each promise and condition that is listed in the agreement. Make sure that all promises made are promises that you are willing and able to keep in order to avoid breach of contract and be sure that you understand the possible consequences of not keeping these promises and responsibilities.

Reading 3: During this last reading, take a step back and look at the contract again from a high level after having fully understood the contract to the best of your ability. It is important to make sure there is nothing you missed and that you go over the most significant parts, usually the promises made, one more time in depth. At this time, it is also important to check to see if there is anything missing from the contract that had been previously discussed between you and the person you are contracting with. It is important that everything you agreed upon and negotiated is in the version of the contract you sign.

2. Understand the Contract: While you are reading over your contract, we recommend making a checklist to ensure that all of the required aspects of a contract are present, as well as the terms and provisions that were meant to be agreed upon. In general, you should think about things that could go wrong, no matter how improbable, and see if there is a provision that covers that potential problem.

A contracts checklist may look similar to this:

  • Is there mutual assent between the parties to the contract?

    • Is there an offer to do something in exchange for something else?

    • If there is an offer, was it accepted?

  • Who are the parties listed in the contract?

    • Who are the people or companies agreeing to sign the contract and agreeing to the promises and obligations that stem from the contract?

    • Are the parties listed in the contract properly, i.e. are the names of each party spelled correctly?

  • Is there consideration involved?

    • Is there an exchange described in the contract?

      • For example:

        • B promises to do X in exchange for C doing Y.

        • If X condition happens, B must do Y.

        • C will pay D for D to do X.

  • What is to be performed?

    • What are the expectations and obligations that each party is taking on by signing the contract?

    • Are you willing to keep those promises and meet those conditions?

  • What are the consequences if there is a breach of contract?

    • If you do not fulfill your promise, what will happen?

    • If the other side doesn’t fulfill their promises, what will happen?

  • When does the contract terminate

    • How long will you be tied to the contract?

  • What were your expectations for this relationship or agreement?

    • Are the terms here satisfying your expectations for how this transaction would go, or is there a way you can negotiate some of the points before you sign?

3. Set Up a Meeting: After you have fully understood the terms and conditions of the contract, have taken notes about questions that you have about the contract, and have noted changes that need to be made, it is important to set up a meeting with the other party to the contract. During the meeting, review the contract with the other party to ensure that you both have a similar understanding of the terms of the agreement. Then, pose any questions that need to be answered or changes that need to be made. Always remember that a contract may be rewritten to reflect the best interests of both parties.

4. Contact a Lawyer: If you have taken the above steps and have unanswered questions, are uncertain about whether you are capable of meeting the promises and conditions in the contract, or are not sure that the contract is fair to you and the other party, contact a lawyer. It is important that you understand what you are signing, that you understand what the consequences of signing mean, and that everything you and the other party are expecting from this contract are written into the contract prior to signing.

If you are the party to a contract and have questions or concerns, feel free to contact us.


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