Contracts and the Wrong Ideas People Have About Them[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_tagline_box backgroundcolor=”” shadow=”yes” shadowopacity=”0.1″ border=”1px” bordercolor=”” highlightposition=”top” content_alignment=”left” link=”http://executivelp.com/sign-up/” linktarget=”_self” modal=”” button_size=”” button_shape=”” button_type=”” buttoncolor=”” button=”Request Contract Service” title=”Need Contract Drafting, Editing or Review?” description=”We offer flat fee services starting at only $100. ” margin_top=”” margin_bottom=”20px” animation_type=”0″ animation_direction=”down” animation_speed=”0.1″ animation_offset=”” class=”” id=””][/fusion_tagline_box] by Noel Bagwell
for Executive Legal Professionals, PLLC
September 9, 2014
Tolstoy Would Approve
Today, the 9th day of September, is the anniversary of the birthday of Leo Tolstoy. I bet you’re thinking, “How did you know that? You must be so smart!” Well, thank you, but I just saw the Google Doodle. Tolstoy’s War and Peace is widely known for being one of literature’s great masterpieces; and it is [/fusion_builder_column][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][in]famous for its length, at a hefty 1,440 pages (paperback) and between 561,093 and 587,287 words (in English), depending on the version and translation. Tolstoy knew that to use words to create a great work, sometimes using many words was required. So it is with contracts.
Wordiness is sometimes a hallmark of poor writing; it is true. Nevertheless, while brevity may be the soul of wit, contracts should strive for clarity, effectiveness, and efficiency (in that order), not wit–and therefore, not necessarily brevity. Length is not an important consideration for drafters (and end users) of contracts. Rather, saying the things that need to be said–no more, no less–should be the goal upon which both drafters and their clients should be focused.
More than once, I have been asked to “just draft a one-page contract,” because my client says he or she doesn’t “want to scare off my customers.” Oh, really? You’re afraid your customers won’t want to do business with you, because you are going to use a legal document to enforce the terms of the deal? What does that say about your customers’ intentions? Perhaps your prospective customers have no intention of following through with the deal the way they are supposed to, have little regard for the terms of the agreement, or maybe don’t even plan to pay you! Do you really want to avoid scaring off such customers? A good contract may scare off many such customers–that’s one of its benefits!
Universally and without exception, all one-page contracts suck. Nevertheless, small business owners treat them as if they’re the Holy Grail of business contracts, when, really, they’re more like a red Solo® cup (and should be treated as such–use once, if at all, and then chuck it in the garbage bin). A one-page contract that contains all it should will be impossible to read without a microscope. Would you invite a client to an important business meeting, outline the terms of a deal, and then offer them a beverage in a red Solo® cup? Maybe, if your business was started in your fraternity house. That’s the message your one-page contract sends: when it comes to business, you are sophomoric. Don’t make the enormous mistake of pinning all your legal hopes and dreams on that one-page red Solo® cup of a contract; have an experienced business attorney draft a contract that’s actually going to hold up under the pressure of a legal challenge. Isn’t that a contract’s entire purpose for existing in the first place?
Flaws of the One-Page Contract
If you’re using a one-page contract, you might have a sentence or two about confidentiality. A good confidentiality agreement, incorporated into a well-drafted contract, might be a contract unto itself. What does your one-pager say about the degree confidentiality to which the parties are supposed to adhere regarding the contract’s subject matter? What does your one-pager say about what happens when the other party steals your proprietary trade secrets? What about if they steal them and use them to compete with you? What about if they steal them and then blab them to someone else? What if they just accidentally (negligently) blab them to a competitor? Scary stuff. Your one-pager isn’t looking so hot, now, huh?
What about permissions for copying your work? Are you a creative person or company, or do you use any copyrighted work? What does your contract say about permissions to use such work that may or may not need to be granted to other contract parties? What about the ownership of creative work created in the course of the business relationship? Who gets to keep that, and who gets to profit from its use, and how?
What if a lawsuit arises outside of your state? Do you have a clause requiring lawsuits to be brought in a jurisdiction convenient for your company, or at least using your company’s home state’s laws? Do you have any contract language in that red Solo® cup contract of yours about how disputes will be resolved? Mediation? Arbitration?
What if your client injures a third party in the course of his business dealings with you? Are you held harmless (indemnified) by your contract, or might you be jointly liable for his negligence? What about attorney’s fees if you have to sue your client, or if you get sued by your client, or if you get sued by a third party as the result of something you do or your client does–individually or together? Do you have a “loser pays” provision, or are you going to get stuck paying your attorney’s fees even if you win?
I can barely list all the the considerations that should be addressed in a good contract on one page, to say nothing of actually drafting a contract that will provide adequate protection for each issue! Suffice to say, under the pressure of a legal challenge, your one-page contract is going to crumple and split, and you’re going to have a mess on your hands.
Oral Contracts: Even Worse than a One-Page Contract
What’s worse than a wimpy, one-page red Solo® cup contract? A so-called “oral contract” or “I.C.s” / “Implied Contracts”.
Implied Contract: “A contract that is found to exist even when its terms are not explicitly stated because 1) the parties assumed a contract existed (implied-in-fact contract), or 2) denying the contract’s existence would result in unjust enrichment to one of the parties (implied-in-law contract).” (Wex)
“I.C.” should really stand for “Idiot Contract,” because idiots, or otherwise intelligent people who, in a brief lapse of sanity, act like idiots, use oral contracts. The worst idiots who use oral contracts are the macho guys who say ridiculous things like “my word is my bond” or “a handshake was good enough for Grandpappy, and it’s good enough for me” and, on those dubious grounds, refuse to sign contracts or put the terms of their agreements in writing. Beware anyone who does business on a smile and a handshake.
Interesting anecdote: a handshake was once used between two people who wished to assure each other neither was carrying a weapon. This evolved into the modern symbol of contract used for an oral agreement. It’s fine to shake hands, especially if you like sharing germs with people. It is unwise, however, to only shake hands. Even savvy politicians and businessmen who make “handshake deals” later follow up by putting the terms of their agreement in writing. If you’re going to be an idiot and use an “oral contract,” at least have two or more witnesses present when you shake on the deal, and ensure the witnesses have a clear understanding of all the important terms and conditions of the agreement. Also,for God’s sake, put some Purell® in your briefcase.
If you have no witnesses and you have not taken any action to support your assertion that an oral contract existed between you and another party, you will need to present some kind of supporting evidence in court to back up your claim. Often, this comes down to text messages and emails, faxes and letters. The party making an assertion has the burden of proof in a civil case. So, if you use an oral contract, you’re going to have your work cut out for you if you want to prove in court what were the terms of the agreement.
A Final Word of Caution
Seriously, though, a good business lawyer will draft a contract for you that will clearly define the scope of the matter the contract contemplates. The lawyer will clearly describe every part of the transaction or deal that has to do with money. For example, who is getting paid, whether they’re being paid in advance or when they will be paid, whether there will be fees for late payment, what sort of expense reimbursements may be paid and by whom, et al., etc.
A good business lawyer will also leave no doubt as to the ownership and rights to use intellectual property involved in the deal. Who gets credit for what, who can use which works and marks, and who owns the I.P. created during the course of the transaction will all be addressed, along with other intellectual property concerns the parties may have.
The skilled contract lawyer will also address what will happen if the terms of the deal change before the contract is fulfilled–if the scope of the transaction grows, for example, fees may increase. There will be a clause, in a good lawyer’s contract, stating that the written contract is the “entire agreement,” and excluding any “oral contracts” or any other such oral agreements. Finally, a good lawyer will clearly state the process that must be followed if the parties wish to change or otherwise modify the contract.
In summary, if you want to engage in business and be considered a professional, you should hire a business attorney to draft strong contracts for you, and you should put out of your mind the silly notions that an “oral contract” or a one-page contract are going to be enough to protect your business interests in the event of a lawsuit. Failure to understand these simple concepts is the hallmark of an amateur attempting to compete in the business world, which is about as wise as swimming shark-infested waters with a hundred paper cuts.
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