Form Contracts from the Internet? Think Again! (A Primer for San Francisco Businesses & Entrepreneurs)
Google "free contracts online" and you will find a profusion of websites touting inexpensive legal documents without the need to consult an attorney. While this may seem like an appealing alternative, the use of such online forms can be risky business indeed. I regularly advise established businesses and entrepreneurs on a wide array of business services, including contract formation.
Using a document that is not comprehensive, clear and specific to your specific circumstances can result in expensive and lengthy litigation if the insufficient form leads to a deal gone south or a lawsuit. Commercial contracts should include tailored, customized provisions in the vast majority of instances. These critical clauses may be missing when downloading a generic contract from the Internet.
Key Clauses for Commercial Contracts
Severability: If a court decides that any of the provisions in a legal contract are unenforceable, the court can "sever" that provision from the contract, and enforce the remainder of the contract.
Choice of Law and Forum: It is imperative to designate which state law will control in the event of a dispute arising from the contract. Certain areas of the law, employment law for instance, often have substantial state law implications. The generic nature of online legal forms may not address state law issues or requirements. This missing element can render the parties unprotected against serious financial and legal consequences.
Damages: Parties may agree in advance to a specified sum of money which will be the "liquidated damages" in the instance of a valid breach of contract claim. Inclusion of a liquidated damages clause removes the non-breaching party's requirement to prove actual damages. This clause can dramatically streamline dispute resolution.
Time is of the Essence: Delayed performance of the terms of the agreement would be a material breach.
Attorneys' Fees: This clause specifies that the non-prevailing party will pay the attorneys' fees of both sides in any legal dispute.
Indemnification: One party agrees to release another party from future liability.
In addition to problems that can occur when online legal forms lack sufficient provisional clauses, there are other potential issues to look at.
Lack of Specificity
The intention of downloadable, publicly available legal forms is to cover a broad range of common scenarios. The inherent problem here is obvious. Every business and situation has unique aspects. It is highly unlikely that a standardized, replicated form will adequately address the particular circumstances involved in a specific agreement.
Out of Date
It is the nature of the law to be in a continual state of flux and change. It is your attorney's job to stay abreast of such changes and advise you accordingly. More often than not, it is impossible to know the creation date of an online legal document. Determining whether the document addresses recent legal developments is difficult to do without the help of an attorney. This lack of information leaves you essentially "in the dark" as to the relevance of the content of many online legal forms.
Clarity of Writing
An overwhelming number of published court cases stem from unclear written agreements. The precision of words in a contract dramatically affects the meaning and enforceability of the agreement. It is essential to have competent counsel when drafting important legal agreements. Gambling with anonymous online contracts can be a short-sighted, costly and regrettable act.
To learn more about business contracts check out What Makes A Contract Valid in California Anyway? Part 2: Consideration and Other Formation Requirements.