THREE CRUCIAL REASONS YOU NEED A WRITTEN BUSINESS CONTRACT

by William Dickerman, Esq.

     The meat and potatoes of business litigation are disputes pertaining to breach of contract. While you might reasonably suppose that means fighting over the enforcement of a written agreement, very often the parties either did not put their agreement in writing, or what they thought was an iron clad written contract turns out not to be an enforceable contract at all. And while oral agreements generally are enforceable, if you want to promote successful business relationships and avoid wasted expense and annoyance, you will take to heart the Goldwynism, "An oral agreement is not worth the paper it's written on.” 

     Many people do not put their agreements in writing because (1) they believe that requiring a writing indicates distrust, which is not a positive way to enter into a business relationship; (2) they are unfamiliar with the slings and arrows of business relationships; or (3) they want to save money by avoiding legal fees. While these reasons are understandable, they often result in, at best, uncomfortable or permanently destroyed relationships; at worst, they lead to bitter, expensive litigation. Here are three key reasons you should insist on having a well-crafted written business contract before entering into a business or economic relationship:

 1. Written business contracts clarify each party's rights and obligations.

     Although oral agreements are usually valid and enforceable, it is much tougher to establish what the parties actually agreed to if they have to rely on their memories and good faith. A properly drafted contract sets forth the specifics of the parties' agreement. Since many disputes over oral contracts concern what the parties even agreed to, a writing is invaluable. It is a major mistake to decide you don't need a writing because you have a solid, trusting relationship with the other party. To the contrary, that relationship is bound to remain strong and become even stronger when each party knows exactly what is expected. And if for some unfortunate reason the contract relationship breaks down, if you're the good guy you'll be glad you had the foresight to spell out the details of the agreement.

2. Written business contracts are much more thorough.

     While attorneys are aware of the "big picture" of what might happen in a business relationship, clients contemplating a contract are often preoccupied with just a few contract terms, such as price, time of performance, and term of employment or lease. But our complex environment requires the inclusion of numerous provisions that would not likely cross your mind. For example, what is your remedy if the other party doesn't perform per the agreement? How will any dispute be resolved? Will the parties slug it out in a destructive court trial, or will alternatives such as mediation or arbitration be used? Who will bear the expense? Will the loser pay the winner's fees and costs? The answers to such questions are critical since significant financial and other consequences hang on the parties' choices. Drafting a written agreement will force both parties to contemplate and agree on a range of matters that would not have been thought about in an oral contract.

3. Contracting parties are more likely to abide by an agreement if it's in writing.

     Written agreements naturally command more respect than more-easily ignored and less carefully adopted oral ones. The parties will therefore feel more bound to perform the terms. The name of the game is avoiding disputes; when the parties have made the effort to put their agreement in writing, they are much more inclined to treat it solemnly.

     In summary, while the idea of an oral contract might be appealing, reality dictates that the best way to ensure that you get what you agreed to, and the surest way to avoid destructive and expensive disputes, is to put your agreements in writing. In a future article, we will discuss some of the must-do's of contract drafting; for now, suffice it to say that any writing, formal or napkin-borne, composed by layman or attorney, will serve you better than relying on trust and good faith that the other party will follow the terms-inadequate at best-of most oral agreements. Because the parties will devote more thought to what they sign, and because written rights and obligations will be clear, the parties will more likely adhere to a written business contract. And any disputes, if they occur, should be much more manageable-and less expensive-to resolve.  

 

Words from a Grateful Client

"William Dickerman is an extraordinarily competent attorney with a strong common-sense approach to business. I co-owned a successful chain of stores. My partner and I disagreed on how the business was to run. Luckily, I hired Bill as my litigation attorney. My partner counter-sued,but Bill's bull-dog tenacity and superior litigation skills scared the other side into submission, resultingin my being fairly compensated for my half of the business. I have frequently sought Bill's legal advice on other business matters. I have learned a lot from him over the years; he has been an instrumental part of my business success."
 
- E.M., President/CEO
 

William Dickerman, the principal attorney of Dickerman & Associates, has been litigating business, real estate, and other commercial and personal lawsuits for over 30 years in and around Los Angeles. For more information, go to www.dickermanlaw.com. This article is not meant to constitute legal advice; please consult and rely only on competent counsel after a thorough review of your individual circumstances.

© William Dickerman 2015 - All Rights Reserved.