Everyone has heard the old saying “get it in writing”. I’ve had two recent meetings that demonstrate the importance of written contracts in business deals. In both cases my clients were owed money from business deals that went south. In today’s economy, this is not unusual. However, Client “A” had a written contract for its business relationship and Client “B” did not have a written contract.
Client “A” had a written contract that detailed the terms of the parties’ agreement. I was able to review Client “A”’s contract and analyze the strength of the claim. As a result, Client “A” was able to quickly make an informed decision on whether to pursue a lawsuit to collect the money they were owed. Unfortunately, this was not case for Client “B” because they did not have a written contract. Without a written contract, Client “B” is now faced with first proving that there was actually a business relationship and what the terms of that relationship were. Client “B” has kept good documentation which will assist in pursuing its claim. However, the process of analyzing the strength of Client “B”’s claim is complicated by the lack of a written contract because it is difficult to determine how a judge or jury will look at other documents in determining the validity of the claims.
Of course just because you have a written contract doesn’t mean that there will never be any issues. However, when you have a written contract there is a greater probability of resolving these issues when they arise because the contract typically address each parties’ responsibilities. And if the claims can’t be resolved your odds of prevailing at litigation increase when you have a written contract that a judge or jury can review.
Every business relationship is unique so what needs to be included in a written agreement depends on the nature of the parties’ business arrangement. However, there are some basic terms that should be in every business agreement including: 1) the parties’ relationship; 2) the parties’ responsibilities; 3) payment terms; 4) record keeping; and 5) dispute resolution. Finally, I would strongly recommend that you have an attorney draft your business agreement or at minimum have an attorney review it prior to signing any agreement.