Yesterday, we started our series on how to read a contract. We noted that what is NOT in the contract can many times be just as important as what IS in the contract. Thus, Lesson #1 was that you should always draw out a flowchart of how the transaction will run so that you can catch what is missing from the contract.
Today, we’ll look at Lesson #2: Always think about what could go wrong first and move backwards from there
I know, I know–this sounds extremely pessimistic. But let me tell you, thinking through every little thing that could go wrong is sometimes the most important way to make sure that everything DOES go right.
So, as a lawyer, when I look at a contract, I try to imagine all of the ways the contract could break down and see if the contract adequately deals with those situations. So, for instance, I ask myself questions such as the following: What if one party doesn’t pay? What happens if some of the products that were shipped are ok, but others are broken? What happens if my event has to be cancelled because of rain? What if I am not fully satisfied with the service I am getting from the other party?
The list could go on and on. But you get the idea. In every major section of the contract, try to think through the worst that could happen. And, once you’ve done that, your next job is then to make sure the contract deals with the worst-case scenarios and details exactly what happens in those situations.
So that’s our lesson for today. Tomorrow, we’ll discuss Lesson #3: What are the Major Terms that Need to Be in Every Contract