Most contracts involve situations where people are making various promises to and agreements with each other. Even if a standard form is used (such as a realtor’s purchase agreement for a house), there are usually some aspects of most contracts that are negotiated, so disputes regarding contracts are usually resolved by determining the intentions of the people who agreed with each other (called the “parties”) when the contract was signed or confirmed.
Admittedly, written contracts are very often seen as a maze of confusion that is difficult to understand. It is impossible as a practical matter to hire an attorney to interpret every written contract we come across. However, hiring an attorney is advisable if the party to the contract has little familiarity with the contract’s subject matter or if the contract involves significant or big promises/payments.
Non-attorneys can begin to understand contracts by analyzing the three main components of most contracts.
The first component of a contract defines the parties: the people who are making the reciprocal promises to and agreements with each other in the contract. The parties to a contract can be literal human beings or entities like LLCs and corporations. Well-written contracts will describe the state of organization for entities that are parties. Because trusts are simply sets of rules, if the assets within a trust are intended to be subject to a contract, the trustee of the trust will be the named party.
The second component of a contract is usually called the “recitals.” The recitals in a contract are facts that the parties to the contract understand but are not necessarily guaranteeing to the other parties. Recitals provide context and can explain some or all of the reasons for the parties entering into the contract. Recitals can explain or answer the question of what the contract is about and why there is a contract.
For example, I may sign a contract for someone to clean my truck. A written contract for that arrangement may include a recital that identifies my truck by year and color. Another recital in that contract may recite that I own my truck. Obviously, my actually owning my truck is relevant to the contract, but the truck cleaner is not positioned to “promise me” that the fact is accurate.
In many contracts, especially ones written based upon older forms or templates, each recital is its own phrase, sentence or paragraph and begins with the word, “Whereas.”
The third component of a contract contains the “terms and conditions.” This component of the contract is where the mutual promises and agreements are identified in detail. This section should answer the questions of what, where, when and how various promises are to be undertaken/delivered.
The terms and conditions can be organized by party, by chronology or by subjects. For instance, many real estate contracts first identify the property, then the price and then the payment terms.
Many service contracts will be organized chronologically to explain what specifically is to be done first, second, third and so on.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.