contract signingContracts are the foundation of business. Whether leasing office space, forming a business entity, or ordering product, contracts are essential in defining the rights and responsibilities of every person or company with whom you do any business. Having properly drafted and negotiated contracts means the difference between success and failure as a business. Not only do you need to have the best terms possible, but they need to be understood, written down and enforceable both legally and practically

Human nature is such that even the best relationships need boundaries. Contracts provide parameters to keep things smooth and expectations met. And they spell out responsibilities when relationships break apart.

What types of contracts should you use a lawyer to write?

  • •Purchase or sale of a business
  • Partnership agreements
  • Shareholder agreements (e.g. buy-sell)
  • Commercial real estate leases
  • Real property acquisition agreements
  • Licensing agreements
  • Employment contracts
  • Confidentiality agreements
  • Non-disclosure agreements
  • Non-compete and non-solicit agreements
  • Major vendor supply agreements
  • Customer contracts and master service agreements
  • Website terms of service
  • Equipment acquisitions
  • Installment contracts
  • Assignments, subleases, modification and novations of existing contracts
  • Anything that involves a lot of money, staged or milestone performance, or complex negotiated terms

Here are just a very few examples of why failing to have well-formulated legal contracts can cost you.

Oral Agreements

No matter how long you have known the other party involved in the business deal, and even though oral agreements are permitted and enforceable in theory, they should be avoided. Oral agreements are harder and more costly to litigate because they are he-said-she-said. The best rule of thumb is to always write it down, including modifications and amendments to pre-existing written contracts.

For example, if the contract does not specify everything the parties agreed to, with some precision, there will be a dispute over expectations later. For example, if you hire a contractor to put in a new carpet, you may not be able to prove a breach when he installs green carpet, even if you swear you told him “blue”. Your word against his will not be enough to win the lawsuit and carry the burden of proof.

Using Boiler Plate Templates

While using boiler plate templates might be the easiest way to draft a contract, they may also expose your business to risk. These templates are very generic and do not cater to the specific needs of your business deal. For example, the boiler plate template might state that you waive your right to litigation and must arbitrate any contract disputes, which may not be what your business prefers. You also cannot know the quality of the original drafter or whether the terms are enforceable in your jurisdiction. Computer software and common sense cannot replace an experienced legal practitioner’s judgment.

Quitting A Contract Early Can Cut Off Your Rights

Even if the other party has breached the contract, you must still do everything in your power to uphold your end of the contract — or at least be able to tender performance. If you fail to fulfill your portion of the contract, you may lose your right to seek damages from the breaching party. Of course, you may be excused from performance, too, depending on the breach by the other side. But you need a legal opinion on this before taking measures that could hurt your rights.

This article only barely scratches the surface of what can go wrong with poorly drafted (or oral) contracts. What gremlins do you have in your business documents, just waiting to cause a problem? Consider having your current contracts reviewed for holes and your standard contracts revised. Bellatrix PC offers a Business Risk Review for precisely this kind of preventative work. It can save you a fortune later.

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