Contracts Demystified

June Campbell explains the process of properly writing and/or understanding a contract.

If you are in business, you will inevitably be required to
produce or sign a contract. Although contract language can be
confusing, the contract’s purpose is to outline the terms that
two parties agree to when entering a business arrangement.
Before signing on the dotted line, there is room for
negotiation and bargaining, but once signed by both parties,
contracts are legally binding.

Having a good contract can save you time and money in the long
term. It isn’t necessary to have a lawyer draw up or review
your contract, but in
most cases, it is a good idea. Lawyers are trained to identify
problem areas that can escape the lay person.

Before visiting your lawyer, do some thinking about the terms
that you want to see in the contract. In your own words,
simply write down how you want the arrangement to be. Decide
in advance which terms you are willing to negotiate and which
are non-negotiable. By bringing this list to your lawyer, you
will cut down on billable hours and reduce your legal

Contracts contain a minimum of three components: (1) The legal
names of the entities or parties involved and the date of
signing; (2) The Definitions,which spell out the meaning of any
terms to be used; and (3) the Consideration, which identifies
the financial (or other) payment that one or both parties will
receive in exchange for fulfilling obligations. Depending
on complexity, the contract may contain many other sub-sections
as required.

The Definitions should include:

1. The Term of the Contract. Identify the commencement date and
the end date.

2. The Territory. Many contracts, especially if covering
intellectual properties such as copyright, use “The World” or even “The
Universe” as the territory. [Editor’s Note: Both as a writer and a
publisher, I believe in negotiating contracts that transfer only the
rights the publisher actually needs. If you are a writer, signing
contracts for world rights, all rights, or work-for-hire can have
serious negative consequences. Try instead to negotiate “one-time,”
“First Territory and Type (i.e., First North American Serial),”
“One-Time Print Plus Use on One Website”, “Unlimited Nonexclusive”
(in descending order of preferences)–whatever the minimum transfer
the publisher actually needs. For more on this issue, please visit
the National Writers Union at]

3. Definitions of terms used in the contract, such
as “Commission”,”Disbursements”, “Gross Receipts”, “Net

The Consideration should include all “payments” that one party
will receive in exchange for fulfilling their obligation. i.e.
In consideration for the sum of $500, the writer produces a
2,000-word article.

Additional terms depend on the nature of the agreement.

1. What are the responsibilities and obligations of each party?

2. Amendments and Alternations. How can the contract be amended
during its life span? Must both parties agree to changes?

3. Termination. What are the terms for ending the contract?

4. Conflict Settlement. How should disputes be settled?

5. Governing Law. If governing law is stated as the law of
your own state, province, or country, you will save yourself
costly travel expenses if conflict occurs.

6. Mutual Indemnity. Include a clause stipulating that either
party will not be held responsible for activities of the other
that may be a breach of the contract or that may occur outside
of the contract. For example, if an artist sells you a digital
image as his original work, but he has actually stolen it from
someone who owns the copyright, then you do not want to be
responsible for any damages or legal fees arising out of that

7. Transfer. What happens if one party declares bankruptcy,
sells the business, or dies? Can the contract be transferred to
Uncle Leroy?

The last page, of course, includes the witnessed and dated
signatures of persons who are authorized to sign on behalf of
each party.

For more by June Campbell, including

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  • business proposals
  • business plans,
  • joint venture contracts… more!
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