The Basics of Contracts Law for the Everyday Person by Sanat Ranganathan of Chicago Metro Area

Chicago, IL, 1st September 2022, ZEXPRWIRE, Sanat Ranganathan, Principal Attorney at The Law Office of Sanat Ranganathan, has worked as legal counsel for companies in the Chicago metro area and elsewhere. He works with his clients to help resolve their pain points, develop technology service agreements, SaaS, software agreements, vendor/supplier contracts, sales of goods and other agreements, and has advised on intellectual property rights. He also interpreted executed agreements and advised on his clients’ rights and obligations. Sanat Ranganathan’s primary responsibility as a company attorney was to safeguard against future problems by negotiating and drafting well-considered contracts, in accordance with good practice guides and standards.

Sanat Ranganathan and his wife Natalie are also planning to launch an online store, “Sanat & Natalie’s Treasures,” which will offer a variety of items including home goods, kids’ toys, seasonal decorations, birthday gifts, and impulse items.

NOTE: This article is for information only and is not intended to provide legal advice and does not create an attorney-client relationship between the reader and the Law Offices of Sanat Ranganathan, nor does it apply to any particular case scenario. Please contact your attorney for any contract drafting or guidance.

What is a contract?

A contract is a promise or set of promises, which if violated, the law provides a remedy, or where the law recognizes a duty to perform. Restatement (Second) of Contracts §1 (1981).  Contracts may be (a) expressly agreed; (b) implied from the conduct of the parties, or (c) quasi-contracts (preventing unjust enrichment of one or more parties).

“There is a popular misconception that unless a contract is written and signed, it isn’t considered a contract, which is untrue,” Sanat said. “Contracts are made every day by everyone, without them even being aware of it. Getting a cup of coffee, for example, establishes a relationship between the business and client with numerous implied obligations that most people are unaware of.”

Furthermore, Sanat explained that certain matters, by law (which may vary by State), must be written and signed by the party chargeable, in order to be enforceable.  Such laws were enacted to minimize the potential for fraud, e.g., in real estate transactions, a promise to stand surety, and pre-nuptial agreements.

In any case, in the commercial sector, it is always better to have written agreements to ensure that everyone is on the same page, according to him.  “It is necessary to read written provisions and understand their true meanings and far-reaching implications, thereby allowing parties to negotiate for more favorable terms.”

“It is always better to prevent legal hurdles in the future through clearly written contracts with expectations set upfront, rather than leave vague terms that could give rise to misunderstandings and future legal battles,” he added.

Contracts are interpreted in the context of the parties’ intentions at the time of agreement. Every aspect of the contract is interconnected, and it cannot be understood in isolation. For example, even if a party breaches a “warranty,” or is required to “indemnify” the other party under the contract, recovery for the other party may be limited by limitations of liability provisions stated in the contract.

“When writing a contract, parties must never define legal terms of art like negligence, good faith, reasonable, etc.  These terms have been defined by established statutory or case law and redefining such terms in a contract may deny the parties certain protections.”

“If you’re not sure what a phrase means, ask your lawyer for assistance, rather than relying on the other side’s explanations,” Sanat advises. “The term ‘indemnification’ is not synonymous with ‘reimbursement,’ for example. When someone sells you a product with the words ‘SOLD AS IS,’ it does NOT imply they are selling it to you as ‘appears’ or ‘looks like’ (see below under “Sale of Goods”).’ These are legal terms of art that have significant legal implications. You should understand what you’re signing up for!”

On a different note, Sanat explains the importance of paying attention to even the tiniest details. “Parties frequently encounter the ‘form battle,’ in which two sides seek to use their templates as a starting point and eventually reach a compromise by merging the two forms. Copying and pasting without careful reading and attention to detail might result in inconsistent provisions, causing future disputes,” he adds.

He also mentioned that grammatical mistakes and sentence breaks are critical since misplaced punctuation or words might completely change a sentence’s meaning and harm a party.

“For example, consider a will provision: “I leave my entire estate to John, William and Mary” versus “I leave my entire estate to John, William, and Mary.”  Notice the comma after “William” in the latter, which was missing in the former. The second comma is called ‘the Oxford comma.’  It is old school and has been dropped from use, but is making its ugly comeback!  Does the lack of an Oxford comma entitle the first person (John) to get half the estate? Keep in mind that State law, grammar rules, the particular situation of the beneficiaries, and consistency of commas in the will, may determine how much of the estate “John” gets. Again, please pay attention to the small details.”

Preventive Law vs. Reactive Law

To continue the discussion, Sanat Ranganathan reminds everyone that prevention is better than cure. He compares Preventive Law and Reactive Law in order to make this point.

• Instead of reacting to unpleasant situations in the future, use preventative techniques to discover and avoid problems before they arise. What should you do if someone offers you “$100,000 in business” if you sign on a dotted line? Do you impulsively sign in excitement or read the words and ask questions first? Of course, the latter option is best, and please seek legal counsel if needed.  Remember, if a client signs a $100,000 contract without prudence, he or she may lose considerably more in the long run.
• Legal advice is not only for when you are suing or are being sued.  We may avoid being sued or having to sue by creating written arrangements in advance. Please use ‘preventative law’ rather than ‘reactive law,’ whenever possible.
• Legal prudence can prevent problems and make you have healthy and happy relationships with people from the other party.
• READ THE WORDS!  Do not sign by just cursory reading or blindly believing the other side who says, “Please sign and don’t worry about it; this is in your best interests.”
• Beware of smooth talk, fine wining and dining, jovial banter, and false camaraderie, in return for signing bad agreements that you will regret for a long time!
• The cardinal rule of contracts: Keep it as simple, short, and sweet as possible.  If a layperson cannot understand your words, a judge may not either.  There is no need to confuse people or use 18th-century arcane words. Yes, lawyers are guilty of this too.

Sale of Goods

Sale of Goods are governed by Article 2 of the Uniform Commercial Code (UCC), as adopted by the various States. Sanat explains, “Parties can vary or change the UCC by contract.  Where terms of the contract contradict UCC, the terms of the contract will prevail.”

The UCC has different standards for merchants and non-merchants in certain areas.  All warranties, whether express or implied, are honored.

The UCC is a gap-filler when certain provisions are missing or unclear in a sale of goods contract.  However, parties would be advised to contract for key provisions e.g., risk of loss, price, delivery timeframe, payment arrangements, “Act of God” (unexpected disaster) provisions, rather than letting the UCC dictate the terms and conditions as a gap-filler.

In the UCC, express warranties are honored.  It is not necessary to use words like ‘warrant,” “promise,” etc., even other words implying the same will be sufficient to create express warranties. “Please be aware when promoting the products in marketing materials or websites,” Sanat advises.

Implied warranties including fitness for purpose are presumed for merchants selling goods in the course of their business unless expressly disclaimed. “If you sell cars, you are implying that the car runs properly and satisfies the legal standard of sale. ”

“In several States, the words ‘SOLD AS IS’ stated conspicuously is sufficient to disclaim warranties, but talk to your lawyer. Please note that implied warranties must be expressly and CONSPICUOUSLY disclaimed; do not put disclaimers in fine print, as that will fail the UCC test!”

Service Contracts

According to Sanat, “Service contracts apply where goods are not involved or merely ancillary to providing services such as consulting, training, and professional services like legal services and accounting.”The Common Law applies to such contracts, i.e., old law from England, as modified by the Federal government and the different States.

Furthermore, he also explained that the structure of service contracts may vary. “For one-time services, a single contract may suffice.  If having multiple or repeating services, it may be advisable to create a ‘Master Agreement’ with associated work/service orders, as and when needed.”

Typical terms that service agreements include are definitions of key terms, contract terms, and duration, type of services provided, minimum volume/dollar commitment (if any), the type of personnel performing the services and relationships, e.g., whether contractor or employees, payment terms and performance evaluations, as well as audit provisions.

Parties should also expressly state the agreed upon services warranties, disclaim other warranties (a conspicuous disclaimer akin to that stated under the “Sale of Goods” Section above, is good practice), and have provisions in place to protect intellectual property, confidential information, and customer privacy.  Other key terms include indemnification provisions for third-party claims against a party caused by the other party’s actions, limitations of liability, and dispute resolution mechanisms.

“A party receiving services must also ensure that the service provider has adequate insurance for its contract performance, liabilities, its employees/contractors, and for contingencies,” Sanat added.

Final Thought

In conclusion, Sanat says, “Drafting or negotiating a contract is not necessarily easy. A contract is to be drafted and analyzed in its totality and not in segments.”

Sanat Ranganathan advises parties not to use provisions stated above in this article blindly without context or review.  “Remember again prevention is better than cure and spending some money on professional advice to ensure your rights are protected and contingencies covered, is better in the long term. Talk to your lawyer if you are planning to sign a contract or have any questions.”