Contracts are a routine part of running a business, from agreements with customers and vendors to partnerships, leases, employment arrangements, and other commercial relationships. While the main business terms may receive the most attention during negotiations, some of the most important provisions are found in the details.
Before signing a commercial agreement, Arizona businesses should understand the obligations they are accepting, the protections they have, and what happens if the relationship does not go as planned.
Review Payment and Performance Terms
Payment provisions should clearly establish what each party is expected to provide and when.
Businesses should review pricing, payment deadlines, late-payment provisions, delivery requirements, performance standards, and any conditions that could affect payment.
Ambiguous terms can create disagreements later, particularly when the parties have different expectations about what constitutes satisfactory performance.
Understand Termination Rights
A contract should establish how the relationship can end.
Businesses should review termination provisions carefully, including notice requirements, termination for breach, termination without cause, and obligations that continue after termination.
Understanding these provisions before signing can help a business determine how much flexibility it has if circumstances change.
Examine Indemnification Provisions
Indemnification provisions can determine when one party may be responsible for certain losses, claims, or liabilities involving the other party.
Businesses should understand what events trigger indemnification, which costs may be covered, and whether the obligations are appropriately limited.
These provisions can have significant financial consequences and should not be treated as standard language that requires little attention.
Check Liability Limitations
Contracts often contain provisions limiting the amount or types of damages that may be recovered if something goes wrong.
Businesses should examine liability caps, exclusions of certain damages, and any exceptions to those limitations. The practical effect of these provisions can vary significantly depending on the transaction.
Understanding the allocation of risk is an important part of evaluating whether an agreement is appropriate for the business.
Review Dispute Resolution Terms
A contract should provide a clear process for handling disagreements.
Depending on the agreement, this may involve negotiation, mediation, arbitration, or litigation. Businesses should understand where disputes will be handled, which law may apply, and what procedures could affect the cost and timing of resolving a disagreement.
Clear dispute provisions can reduce uncertainty if the relationship breaks down.
Look Beyond the Main Terms
Important contractual obligations can also appear in provisions dealing with confidentiality, intellectual property, insurance, assignment, governing law, renewal, and other matters.
Businesses should review the entire agreement rather than focusing only on the commercial terms that were negotiated.
A provision that appears minor during negotiations may become significant when circumstances change.
Know What You Are Signing
A contract should support the business relationship rather than create unexpected obligations.
Before signing, Arizona businesses should understand the key provisions, identify potential risks, and determine whether the agreement reflects the deal that was actually negotiated.
Merchant Law Firm assists Arizona businesses with commercial transactions, contract drafting, negotiation, and legal review. Proactive contract review can help businesses make informed decisions and enter commercial relationships with greater clarity.
