Legal Addendums: Your Guide to Understanding Contracts

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January 23, 2021


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  • As it were, contracts can be a rather complicated affair, sometimes on purpose in order to make the other party or parties confused by exactly what it is saying. It is not exactly the most honorable thing to do to obfuscate text in order to confuse other parties, but that does not change that it can be a rather effective approach in creating a contract. Even seasoned lawyers, such as those employed at Weisblatt Law Firm can misread contracts. In order to help counter this strategy, however, we have this helpful guide to help you better understand complicated legalese contained within all too many contracts.

    Your Guide To Understanding Contracts

    The first thing to understand is that a contract cannot just be nonsensical, it actually needs to be theoretically sensible. But after that, grasping contracts becomes a lot easier if you can grasp how contracts are structured. One should not expect that a contract is going to be as simple to understand as a lot of other types of texts you’ve read. Contracts are definitely not always going to be read linearly. The structure for contracts is designed to keep things together by relevancy, and you may have to navigate back and forth through the contract to fully understand. Different parts of the contract are likely to have cross-references to other parts of it, and good structure will ensure that navigating to these relevant provisions are as simple as possible without dumbing it down. If you intend to understand what a contract says cover to cover, the best thing you can do is read and re-read it until you’ve committed it to memory. Or, failing that, hire someone to do it for you. After all, you can definitely find contract lawyers whose job it is to know how all of this stuff works.

    Now, we are going to look at the specific ways that contracts are structured. In general, contracts are going to have more or less the same kind of structure. The first part of a commercial contract is the preamble, which basically summarizes the name of the contract, the parties involved, and the date the contract was entered into. The next part after this is the recitals section, which are meant to provide better context for both parties, such that they can understand the background of the contract better. These are not necessarily required to be included, but one should expect this to appear, so make sure you are prepared to look through it. The part after is the defined terms section, which is intended to help lay out all the important terminology that will be relevant to both parties being able to understand the contract. Generally, this section will include any terms that one or more of the parties involved in creating the contract feel that are not easily understood through common sense. Defined terms may be used within other defined terms, so you may have to go through the list multiple times to get a full understanding of all the terms included in the list.

    After this is the term and termination portion, which basically goes over how the contract operates. I.e., how does one terminate the contract, how does one extend it? This section will detail how and when things can be done with the contract. Be sure to pay close attention to times and dates, as t hose can be rather tricky. The representations and warranties portion boil down as promises that the contents and agreements in the contract are true, and that any promises you make are ones that you can keep. Meanwhile, the covenants section are promises made within the contract. The conditions section are less promises and more declarations; basically, if the contract is not fulfilled by X date, the contract will become void. The next step of the contract is the Payments section, which basically details how and when payments are handled, and what happens if a payment is missed. Risk allocation is an important part of the contract, which basically explains how potential risks are addressed and mitigated so that their impact is minimal to nonexistent. The boilerplate section include various legal provisions, while the exhibits and schedules section contains summarizes the services, pricing, and agreements.

    When you are reading a contract, it is important to print it out, as it makes it a lot easier to read and navigate. Printing out multiple copies can also help to cross-reference certain details. The reading process is best done in multiple passes, with each pass being done with a certain mindset. Skimming through to get the basic details is a good first step. After that, make sure to go over the defined terms with a fine-tooth comb and read through again in a thorough fashion so you understand. After this, do another read-through of the defined terms, such that you can make sure you truly understand what you read, and then look at how these terms read in the text. It may seem like a tedious task, but it is of the utmost importance to be thorough.

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