As a San Antonio Business Lawyer, I offer many services for businesses and entrepreneurs. Among these, if your business is growing and needs to control its risk profile, I can help you create one or more Business Contracts (and similar documents, including Terms & Conditions, Purchase Orders, Waivers, Disclaimers, Privacy Policies, and many other documents) for your small or growing business. Contact us today!
The field of contract law is extensive, and can be complicated. Keep in mind, however, that the legal term “contract” does not necessarily refer to a written document with a whole lot of fine print, brackets, and defined terms. A contract can be unwritten. But, in the coloquial, non-legal sense, it refers to a written document with signatures that reflect a business agreement between two parties. For the most part, when average people use the term “contract” this is what they mean – and it’s (mostly) the way I’ll use the term in this article. Just be aware that you can accidentally create a contract, even though there is no written agreement.
There are many reasons that you should use a written contract to protect your business:
- Objective Permanent Record: A written contract serves as a permanent, immutable record of the agreement that was struck – the value of this will be apparent to you if you’ve ever had the experience of discussing a matter with another person and coming to an agreement (or what you thought was an agreement) only to then revisit the conversation/agreement later, to find that your recollection of what was agreed and the other person’s recollection of what was agreed are diametrically opposite. A written contract that serves as an objective record of the agreement goes a long way toward resolving this (why argue about what was agreed? just go read what we wrote down and signed!).
- Litigation Avoidance: As a business attorney, it is repeatedly made clear to me just how much people hate litigation, the risk of litigation, the prospect of litigation, all of it. A written contract can help you avoid litigation in several ways by its facial terms: (1) a contract can require that the parties attend mediation before a dispute can proceed, (2) the contract can provide that arbitration will govern any dispute rather than traditional litigation, (3) the contract can set the venue and jurisdiction of any potential dispute – which can be a significant deterrent in some cases, or at minimum a cost saving measure, (4) the contract can provide that the loser of any dispute must pay the winner’s attorney fees – which gives parties much more to lose, and makes the prospect of a spurious or “risky” lawsuit less likely. But even apart from the actual terms of the contract, a contract can assist in litigation avoidance by its mere existence, by (1) providing the parties an objective record of what was agreed (see above), (2) allocating the risks of the deal to the party best able to bear such risk, (3) prompting the parties to consider and address all (or, at least, many) eventualities and contingencies early in the dealmaking process, reducing surprises.
- Formality: If your business implements consistent processes that rely on written contracts, etc., then it becomes much less nebulous when the “deal is struck” in any given circumstance – the deal is struck when the paper is signed, not before and not after.
- Procedure and Compliance: If there are certain requirements that your business must comply with (such as regulatory directives), the use of a written contract can assist in compliance. Employees, who almost certainly will not have the legal training to spot every single compliance issue in every single transaction all on their own, can use – or, indeed, management can require that they use – the written contract prepared by management and legal counsel as a checklist or “go-by” to maintain compliance.
- Efficienct Use of Expertise and Sophistication: By using a form contract, or a set of form contracts, to serve as the basis of a company’s transactions and commercial activity, a business can bring to bear a significantly larger amount of expertise to bear than would be economical to use for each individual transaction. Suppose a company’s typical sale is $100. Spending $1,000 in management time and legal counsel fees to generate an individualized, particular, customized contract for each one of these sales would be silly. Each sale would result in -$900. However, spending $10,000 as a one-time expense to develop a solid, well-considered set of contracts and forms that can be reused for each of those transactions is a different proposition. Reusing the forms for each of those $100 sales presents an additional cost of $0 (in most cases). Once the company completes 100 of its $100 sales, the expense has been covered and everything following is economic surplus.
- and many more…