7 Common Contract Mistakes, And How To Avoid Them
Your most common contract questions answered.
While I primarily work with creative business owners, no matter what type of business you have, one truth remains the same: as long as you are selling any sort of goods or services, contracts are the bedrock of your business.
Case in point: meet my dad.
He’s owned his own business since the day he graduated college, in the most competitive industry in our state. Not only has he always been an entrepreneur, he has succeeded in an industry that relies heavily on contracts. This was the specific area of contract law that I practiced in prior to started my own business, so I’m speaking from experience.
Did he go to law school? Nope. Does he understand contracts better than most attorneys I know? Absolutely. And not because he paid to learn about them…but because he had to. Because he put his name behind his own business, he decided it was well worth it to invest in learning about this integral part of his business.
And I’ll be the first to tell you- my dad’s been the first to keep me humble with my contract knowledge. 35+ years of keeping his skills sharp meant that he was constantly challenging me in law school, and it wasn’t until I started working in-house at my first publicly traded company that I was able to best him when it came to the nuances of contract law.
So what are some contract basics that you need to know to stay legally savvy? My most FAQs around contract law asked and answered:
1. What is a “legal signature”?
Technically, it’s just identifiable proof that there is an agreement between the two signatories of the agreement. It doesn’t have to be a perfect or even legible piece of writing, but it must be correct in order for the agreement to be legally binding.
The catch? It must represent the signor- if that’s a squiggle, and X, or a picture (while I wouldn’t recommend that), any can do. The key to keep in mind is the purpose of the signature: proof that an offer was made by one party and accepted by a second party.
2. What about an electronic contract?
Electronic contracts are becoming more and more popular within the American legal system, but make it a business practice to have your client sign the contract before you do. In other words, send it to them on Honeybook blank, and once you get it back with their signature, you sign it. More on this topic to come in a later post. As the world becomes more and more electronic, the specifications on what constitutes a “signature” has been broadened as well. Now, it is widely accepted that a “signature” can be anything that marks the paper- even a computer.
3. Who can sign?
First, the signatory must be 18 years old and involved in the actual execution of the document. In other words, they must have been the party that accepted the offer. It can be a person, a corporate entity, an LLC, etc; just as long as it’s made by the person who has the legal authority to sign on that entity’s behalf.
Once you know the person signing has the capacity to sign (18, involved in the agreement, mentally competent), it’s important to make sure you have the right person sign. Here, I’m breaking down how to make that crucial distinction.
4. Does it matter where the person signs?
I get asked all of the time- should I have my client initial each page, or is a signature at the bottom of the agreement sufficient?
If you have a high dollar amount contract and a client you suspect might not be good about reading the contract, then it might not be a bad idea to have them initial next specific portions of the Agreement. For example, you may want to have them initial next to the payment portion, to prove they read it, agree to it, and have no excuse for failing to pay you later on. Otherwise, just have your clients simply sign on the signature line at the end of the document.
5. What if we’re reading through the contract and realize something minor is wrong? I.e. A name spelling or a date?
Editing contracts bring us to a very tricky area of contract law, where we have to tread carefully between modifying and flat out editing or amending a contract (more to come on this topic in a later post). Today, I just want to leave you with this simple lesson: in order to make small changes to a contract, such as changing the date or maybe a misspelling of a name, the term in question must be crossed out, changed, and should be initialed by each party. If you have any sort of larger change, the entire contract will need to be amended.
6. When does a contract become effective?
The date that the last party signs it. For example, if you send it to your client via Honeybook, and sign a day after them, it’ll be effective on the date of your signature. Keep in mind that you can’t post date or predate signatures on valid contracts, but you don’t need to sign the contract at the exact same time or place as your client.
7. How should my client and I sign the contract?
This is a big one, and a mistake I see people making all the time. It’s crucial to make sure all parties involved are signing the contract correctly so that it is valid!
How you should sign as an individual: sign as you would a check, or government document. For example, do you normally sign with your middle name? Do you abbreviate your name?
How you should sign as a business: Name of the signor, their title in the company, the company name, and company designation.