How to Read a Contract in 7 Easy Steps?

In India, the contract acts as a backbone of various types of transactions whether we are buying products for business, providing some service to the business, or trying to enter into agreements between two parties. Contracts are always used to serve these needs. Understanding the properties of the contract becomes essential in this case so that we can easily safeguard the interests of all the parties who are involved in the contract.

In this article, we will understand the meaning of a contract and the points to keep in mind while reading a contract. Further, we will also learn what are some of the best practices for us to review a particular contract keeping contract legislation in mind.

How to Read a Contract?

1. Identifying Potential Issues in the Contract: Identifying the possible issues in the contract is the most important and crucial step that is involved in analyzing the contract, it means that both parties must understand clearly all the points that are listed in the contract. The contract should be drafted with sound mind and with precision and the person who is responsible for writing the contract should not include any unambiguous terms.

Another important consideration that one must take while reading the contract is that the contract itself should include all the necessary terms as well as the conditions to make sure that the contract represents the rights and responsibilities of each of the parties involved.

2. Reading the Contract More Than Once: Reading the contract more than once is also one of the most critical aspects to make sure that you understand all of the details that are shown in the contract. You need to invest time and read the contract more than once as many times as required to make sure that there is no ambiguity in any specific clause. If any clarification is needed, both parties must clear their doubts then and themselves.

3. Read Contract Related to Industry: If you are signing a contract for an industry that you are not familiar with, then it is advised to refer to a contract that is related to the industry that you are signing the contract. This helps understand the contract in more depth by understanding the common practices, clauses as well as terms that are used in the contracts that you read. This also provides more helpful insights about the contract as well as the industry which will ultimately help you to negotiate and understand your contract easily.

4. Follow the Approach of Three Passes: The approach of three passes is a very popular approach that is followed by industries to read and understand the contract. The three passes or three phases approach is completed in three steps, which are the following:

• First Phase: The first pass or phase involves skimming through the contract to get a general overview of the terms as well as the structures of the contract.
• Second Phase: The second phase involves reading the contract more thoroughly while making sure that you pay close attention to the specific clauses, obligations, as well as potential risks.
• Third Phase: The third phase is the final phase which involves the reviewing of the contract again while focusing on the potential loopholes and areas for negotiation that might be present.

5. Make Sure to Fill the Blanks: Whenever we talk about contracts, we must pay attention to the details. When we dive into the world of legal documents, it is very important to make sure that we fill in the blanks with utmost precision. a space that is present in a contract can lead to a problem and it could potentially alter the entire contract agreement as well.

So whether it is in terms of payments, some obligation, or condition make sure that you do not overlook any blanks that could lead to misinterpretation or some sort of legal disputes later. The readers need to exercise the diligence of the contract and make sure to fill in these wide gaps. It is very fundamental to the validity as well as the enforceability of the overall contract.

6. Confirm the Parties Who are Involved: Another fundamental step in the process of dissecting a particular contract is that you need to confirm the parties who are involved in the contract. It seems to be a very basic and easy step. But before proceeding further in the agreement, it is very important and essential for you to identify as well as acknowledge all of the parties who are to be bound by its terms. It does not matter whether it involves businesses individuals or any other entities. Make sure to set the foundation for the understanding of their respective roles as well as the responsibilities that are to be outlined within the document.

7. Check for Ambiguity and Certain Phrases: Checking for ambiguity as well as certain phrases is also a very important step to consider. Ambiguity can sometimes be intentional or unintentional, but it can sow seeds of confusion and then serve as a breeding ground for future disputes as well. Therefore, the readers must make sure to fully understand the language that is being used in the contract and identify any weak terms or ambiguous statements that could potentially lead to different interpretations than what they may have wanted in the first place.

In conclusion, we learned to master the skill of reading a contract. It is a very important skill that is required to fully understand the legal agreements, by following the guidelines which we have discussed in this article. Readers can help themselves understand complex contracts effectively by adopting a proactive as well as a thorough approach. Individuals should make sure that they have clarity and enforceability of the contractual agreements.