Contract Tip – Who are the Parties?
Contracts are everywhere! Whether you’re signing a lease, purchasing goods or services, or you are an employee or employer – most likely you’ve got a contract. Contracts can be oral agreements or can be written. They do not even need to look official – someone could send you an email with an offer of terms, and if you respond to that email accepting those terms, you’ve got a contract! Clients hire us all the time to write their contracts or review the contracts they have been provided. There are so many red flags and important considerations when dealing with contracts, but this week’s blog is going to cover one of the simplest, and often most overlooked issue with contracts – WHO ARE THE PARTIES?
The example today will be an independent contractor or employee who has been hired by an employer. Often, employers will find boilerplate contracts online and send them to their employees or independent contractors, but even if the employer has not put much thought into their contract, all of the provisions are important because if there is a conflict – they will all become critical. One of the most basic parts of a contract is who the relevant parties are. Business A is hiring Employee to perform the following duties for the following salary, or Business A is entering into this contract with Independent Contractor A who will be paid for the following services at this hourly rate. We see these all the time.
The names of the parties are so often overlooked by everyone entering into the contract, and that is a contract attorney’s worst nightmare – here is why:
1. Corporate Protections:
Why do we even create companies when we are doing business? There are critical tax reasons, liability considerations, and especially licensing and insurance. If the parties do not list their appropriate corporate names, they can miss out on those important protections and even run afoul of their licensing rules. Making sure the names of the parties are exactly right ensures you are putting yourself or your company in the best place to maintain your protection.
2. Collection of Invoices:
Here’s something no one really likes to think about. You get a job or land a big contract and sometimes the thought is, where do I sign?? If the parties are not correct in a contract, you can put yourself in a terrible position if the party that is supposed to be paying for your goods or services fails to do so.
What we see so frequently is inactive or non-existent corporations listed in contracts. If a company like that enters into a contract, and fails to pay for the goods or services, you can be in a situation now where you are trying to sue an individual doing business as a corporation or just be plain out of luck suing an inactive business. With the latter, there are lots of legal considerations that can make collecting on an unpaid invoice more complicated. With the former, you will probably never see the money that you are rightfully owed.
3. Ambiguity:
The law’s Achilles Heel is ambiguity. It’s the food of conflict and what can lay a strong legal claim low. If the parties listed are wrong, and for example, the terms of the contract are not followed exactly because of confusion regarding how to invoice for work, it can lead to confusion and conflict between the parties. The independent contractor could be sending the invoices for services to the wrong place, which leads to stopping performance of services, and more grief.
It’s so easy to just scan through a contract when you receive it and think “I’m sure it’s all boilerplate – what’s the worst thing that could be in here!” Do not fall into this trap – either carefully review your contract, or talk to a lawyer at Wakefield Law so we can work through the provisions, including who the parties are, together. We are often able to come up with flat fees for contract review, or provide competitive hourly rates for review and conference with clients. Give us a call at 703-771-9740 to discuss your contract needs!