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Los Angeles lawyer article review: A written contract is like insurance on an agreement between two or more parties. Having an agreement on paper can insure that all parties abide by the contract and if not you wont be at fault.
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Why Even A
Simple Contract Can Save Your Bacon
by Richard A Chapo
Every business owner says it; "Do I really need a written contract?"
The answer is "YES, YES and YES!" Using a written contract is like
buying insurance for your business deals, but much better.
What Is A Contract?
Simply put, a contract is an enforceable agreement between two or more
parties. The contract contains the promises made by the parties to one
another, which is legally known as "consideration." These promises
define the relationship being undertaken as well as what happens if
the business relationship doesn't work out. If one party fails to act
according to their promises, then they have "breached" the contract
and can be found liable for damages. The damages typically equate to
what the non-breaching party would have received if there had been no
breach.
Oral Contract v. Written Contract
You go to a party with a friend and meet someone interested in your
product or service. Eventually, you agree to provide him with 1,000
units of your product in exchange for a discounted price. You have
created what is known as an "oral contract." He has promised to order
products and you have promised to provide them at a discounted price.
Is the agreement worth anything? Unfortunately, the answer is probably
no. Why? In most states, oral contracts are not enforceable if they
carry an inherent value in excess of $500. Since it is so difficult to
establish the terms of an oral contract in a dispute the legal system
tries to discourage them. In fact, this legal restriction is generally
known as the "Statute of Frauds."
Injured people with lawyers receive 3.7 times more than injured people without lawyers.
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Turning back to our example, what if you thought you were going to
give a 10 percent discount and he thought it was 20 percent? What if
you can't resolve it and he insists you provide the discounted
products? You will end up in court with the dispute coming down to
which party the judge or jury believes. Are you really willing to take
that gamble?
With even a simple
written contract, you can create a clause
containing language that states you will give a 10 percent discount.
If the dispute ends up in court, he is asked if his signature is on
the bottom, the clause is read and you win. The contract should also
contain a clause requiring the "prevailing party" to be reimbursed for
their attorneys fees and costs. In short, he has to pay your legal
bills as well.
An additional benefit to using a written contract is the due diligence
element. I realize you will be shocked to learn that there are
unethical businesses. In negotiating a contract, very specific
requirements are put in writing. What if the other party starts
squirming? It may be a sign they are unable to meet their obligations.
Might that give you pause before you commit to tying up your
inventory? You can save yourself a lot of headaches by discovering
this information in advance.
In summary, even a simple written contract should be a mandatory
bullet in your arsenal. Much like car insurance, you will be glad you
have one if a business transaction falls apart.
Richard Chapo is the lead attorney for the law firm http://www.SanDiegoBusinessLawFirm.com
- a firm providing
legal advice to California businesses. This article is for general
education purposes and does not address every facet of the subject
matter. Nothing in this article creates an attorney-client
relationship.
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