8 pieces of advice for less hassle with contracts!

The negotiation and conclusion of contracts are sensitive tasks – time consuming, complex, and the details matter. And when cross-border transactions are involved, things can get really complicated. Unfortunately, many business owners despair at this situation and therefore neglect the careful design of a useful contract – with the attitude: “Everythings gonna be all right ….”.

A fatal attitude! The only reasonable approach is to adapt the necessary contract carefully to each particular case. Because only then the contract can do its job – govern the rights and obligations of the parties and, in the event of a dispute, clarify what each party has to do or has not to do.

Here are 8 small pieces of advice to prevent the worst problems and to make contracts more secure:

  1. Conclude a contract always only in writing.
  2. Model contracts are a double-edged sword – they give on the one hand a first orientation regarding the content of a particular contract, but on the other hand they are seen as a “given” and are not adapted to an individual case. If you use a model contract you should always clarify whether the regulations in the model contract “fit” for the current case.
  3. Ideally, each regulation is formulated in simple and short sentences. Nested sentences sound intelligent, but are difficult to understand. It’s not about beauty, but about precision and clarity (and regarding contracts with foreign partners: short sentences are easier to translate into a foreign language).
  4. The performances and obligations of each party should be described clearly and with precision. If you read them and you have the feeling that something is missing – it is often exactly like that.
  5. Each party must have an understanding of the basic concepts, events, and (shipping and payment) terms of the contract – and this understanding must match that of the other party. In case of doubt, the contract must include explanations and definitions of certain terms and expressions.
  6. The contract should clearly state what the contract language is (especially in bilingual or multilingual contracts this is important for the interpretation and application of certain terms) and which law is to be applied (you should assume that every country from which each contract party has its own legal system – which is to apply to the contract?).
  7. Important provisions of any contract concern warranties and liabilities and limitations. It is important to note that warranties and liabilities are two different areas of regulation!
  8. Even when using the best contract, sometimes the parties will have a dispute. Therefore, the contract should regulate how to proceed in such a situation – will there be a mediation or arbitration procedure, or do the parties have to file a claim with an ordinary civil court?

Although the recognition of these 8 points will no guarantee that the business of the parties may be carried out without any problems. But does the contract include regulations with regards to these 8 points, a number of problematic issues can be handled much easier.

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The law firm Lexa specializes in extrajudicial counselling regarding corporate law and contract drafting. Our clients are companies of all sizes. Interested in more information? Follow us on Twitter (kanzlei_lexa) or “like” our Facebook fan page (kanzlei.lexa). And please visit our law firm website (Link) or our blog (Link).

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About Carsten Lexa

Carsten Lexa, LL.M. holds an LL.M. in International Commercial Law from the University of Westminster in London, UK. He has been an Attorney at Law in Germany since September 2005: He was Associate Attorney at the law firm of Lachner Graf von Westphalen Spamer in Frankfurt am Main until May 2007 (Commercial Law / Corporate Law) and has been a Partner in the law firm of WPV Rechtsanwälte until May 2009 dealing with Commercial Law / Corporate Law / Contract Law matters. In June 2009, Carsten Lexa established his own law firm, advising corporate clients, especially family businesses, in the areas of Commercial, Corporate and Contract Law matters (Website: www.kanzlei-lexa.de). Carsten Lexa is also engaged in the academic side of the Law, being appointed Examiner at the Julius-Maximilians-University in Würzburg, and he is seminar facilitator in the field of claim management, company formation and company restructuring. Since 2010, he is also associate professor at the University of Applied Science in Würzburg.
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