Thursday, Dec. 03 2009 4:29PM

Contracts 101: Who, what, when, where

Scott Devouton, Guest Columnist

Contracts are everywhere. Whether your contract is big, like a home purchase agreement, or small, as with a cup of coffee, they all have the same components. While you probably understand the terms of that cup of coffee, it helps to know how to read a contract.

Look at every contract as a “who,” “what,” “where,” and “when.”

1. Who. The “who” means the parties to the contract. Clients who do business through an LLC, corporation or trust should always look twice at the “who.” Make sure your company or trust is named, normally in the first paragraph and then again on the signature block. In the case of a company, failure to use the company’s name could weaken the asset protection the entity is designed to provide.

2. What. The “what” is what everyone will get out of and/or give up in the contract. In legalese, this is called “consideration,” and is incredibly important. It will establish the baseline for your cost/benefit analysis (discussed later in this article) and will set out what you are obliged to do while the contract is effective. The “what” is most likely the essence of your deal.

It is also helpful to look at a contract’s “what” as an ideation tool. While cash is the commonly perceived choice of “what,” it may be helpful to remember that services, products and debt reduction are all forms of what.” Creative and constructive thinking about “what” can open doors and resolve conflict.

3. When. You understand that a contract becomes effective when signed or when everyone does what they’re supposed to do. Also know that time affects contracts in lots of other ways. Sometimes a contract doesn’t kick in right away, or it may have a few deadlines along the way. Some contracts require additional “what” at a later time. When you read your contract, lock important dates into your calendar. Also recognize the time value of the “what” in your contract.

4. “Where” is where the “what” will happen. This is important for things like shipping and insurance costs, sales tax and travel expenses, but can also be crucial in dispute resolution. Choice of jurisdiction and choice of venue clauses can be important, and can be crafted at the beginning of a deal. Absent this language, jurisdiction and venue will depend on what happened where, and when.

The “who,” “what,” “where” and “when” make up the concrete contract terms, but there are a few other themes and hot issues to remember:

Risk. The benefit of the bargain normally drives you, but don’t forget to balance this with risk. Identify and understand what yours will be in the agreement. Then lay it over your personal risk tolerance. Risk is part of every deal, from those new shoes to the biggest commercial real estate development.

Boilerplate. “Boilerplate” is sometimes misperceived as contract language included in every agreement that doesn’t mean much. The first part may often be true, but the second could not be more wrong. Boilerplate may be identical from contract to contract, but it has as much legal standing as your “what” clause. You or your lawyer should take a few minutes to assess how boilerplate affects your particular world.

Dispute Resolution. Some contracts end up in dispute, and most of those go through a dispute resolution process. Negotiation (usually informal) is the most common. Arbitration is often a requirement in consumer or construction contracts. Litigation is normally the choice of last resort. Mediation is a hybrid of these, and is growing in popularity. If you find yourself in a contract dispute, I encourage you to seek information on all these forms of dispute resolution.

Value. Contracts boil down to value, which means different things to different people. This is true when you’re entering a contract, and also down the road, when you’re resolving differences. Perceiving value early could save you time and money via litigation. Holding true to other non-cash values could demand nothing less than a jury trial.

Contracts are everywhere, and affect different people in different ways. Know yours, especially the big ones. Take a moment to read the “who,” “what,” “when” and “where” of your next agreement before signing on the dotted line.

Based in Lee’s Summit, attorney Scott Devouton works as general counsel for companies, partnerships and families, and serves as transaction counsel for individual projects. Scott also manages team specialists and local counsel. Devouton, LLC is a business, estate planning and real estate law practice serving clients worldwide, and is part of Pathways Life Planning Attorneys.