Why Have a Contract?

WHY HAVE A CONTRACT?

Business contracts are presented and signed every day. Think about all of the contracts you have signed in the last year – your home, auto, commercial, life and health insurance; accountant or bookkeeper agreement; payroll agreement; membership agreement; vehicle purchase, lease or rental agreement; credit card or bank agreement; employment contract, etc. Also think about the contracts that you didn’t have to sign, but, that you agreed to based on an electronic purchase, such as a streaming app or other app.

Are you sure you know what you agreed to? Are you sure you are properly protected in case one of your clients makes a claim against you or in case you need to make a claim against a product/service provider?

DEFINITIONS

All contracts are agreements, hence the word, “agreement,” is often used in place of the word, “contract.” Contracts are legal documents that can affect the products/services you provide to others and those others provide to you. They can be used in a court of law to form part of a plaintiff claim if you are the plaintiff or to form part of your defense if you are the defendant. In contrast, agreements aren’t always contracts, as they could be as simple as you and your friend agreeing to see a certain movie.

PURPOSE

In business, contracts are used to give clear details about what is being agreed upon by both parties, so both parties can have an enjoyable experience and be happy with the outcome of the products/services provided; to avoid disputes later on; and to serve as legal evidence in the case of a legal claim.

As a product/service provider, it is best practice to verbally explain the terms of the agreement, and have the terms clearly defined in a written contract, in case your client forgets what you told them, your client misinterprets what you told them or the client chooses to lie about what they agreed to. Some people prefer to blame others than take responsibility for their actions.

Also, encourage your clients to read your contract and give them plenty of time to do so, including time to have them have your contract reviewed by a legal professional, before they sign.  If you rush a client to sign without giving them sign to read the contract before signing, you may end up with an unhappy client down the road opening yourself up to a legal claim in the future.

Even if you have a personal relationship with the person that you will be providing services/products to, use a contract, encourage the person to read the contract and sign the contract, and of course live up to the terms and conditions of the contract.

Also, it’s important to save other information about your interactions with your clients throughout the course of your service to them, in the form of emails, text messages, Whatsapp or Signal messages, social media messages, emails, phone calls and written notes in a CRM or on a document such as a spreadsheet, Word doc, Google doc, etc. after having a video call, in person meeting or phone call with them. It is common to think that you will remember or that it is not important to keep a record of your communications, but, it is best to do so in case you need it for the future. If you don’t need it later, that’s fine, but, if you need it and don’t have it, it can cause a lot of issues for you whether it be a deterioration of the professional relationship, personal relationship or legal claim.

WHAT SHOULD YOU INCLUDE IN YOUR CONTRACTS?

It is best to seek legal advice from a lawyer, paralegal or other licensed law professional to find out what you should include in your business contracts to protect yourself. It’s even better to have a legal professional write the contract for you.

To give you an idea of what may need to be included, I have added some bullet point items below that are based on the recommendations from the lawyer who reviewed and approved the contracts I use with my clients.

Even though contracts can be disputed, if the contract your client signed with you has been properly written and approved by a lawyer in advance, unless you did or didn’t do something that you agreed to in the contract, or some other very significant issue arises, the chances are low that your client will make a claim  against you and the chances are low that you would be found at fault should they make a claim.

Make the number one rule of your business be to protect yourself from legal claims and to protect your business reputation from non-legal, untruthful claims that an unhappy client made make to others. We can’t prevent others from talking bad about us,  but, if you have evidence of a client or former client making untruthful claims about your agreement or about their business in general, which causes provable damage to your business, you may be able to use it as evidence in a defamation lawsuit.

These are a few terms and conditions that are commonly included in business contracts, that may be applicable to your business:

1. The nature of the relationship between you and the client (e.g. a contract of service vs. an employment contract, or other)
2. Specific services and/or products you are agreeing to provide.
3. How much the client is agreeing to pay for the services
4. Time frame or estimated time frame for delivering the services
5. Indemnification
6. Privacy policy
7. Cancellation policy
8. Severability
9. Governing law – attornment

*Note, this information is not intended to be a substitute for legal advice and it may not apply to your business. Consult a lawyer, paralegal or other legal professional for advice specific to your business.

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FLIP-SIDE OF CONTRACTS: Those you are asked to sign by product and/or service providers.

It is ESSENTIAL that you read every word in every contract you are presented with so you understand what you are agreeing to the best of your ability and so you can ask the provider questions about anything you are not clear on before signing the contract. Then, before signing get a lawyer or qualified Paralegal to review the contract, explain what each term means and provide you advice as to whether they believe the contract is fair or whether it has red flags to indicate that the provider may be trying to do something illegal or unethical.

If there are many red flags, you may want to walk away completely from this provider and pursue a different one. However, if there aren’t any red flags, but, there is something or more than one thing you don’t agree with, you don’t have to necessarily walk away from that provider. Instead, you could ask the provider if they would be willing to change the terms you don’t agree with. If they do, get those revised terms approved by a legal professional, then decide to move forward with the contract or pursue a different provider.

Note, when you sign a contract you are legally obligated to fulfill the terms of the contract, unless a court of law determines that one or more terms in the contract are invalid or illegal. This means you can’t say that you didn’t agree to something or the provider didn’t tell you something when you agreed to the arrangement by signing your name on the contract. Also, you shouldn’t diss the company who followed the contract you signed. If they followed the contract and you didn’t, you are liable, so don’t put out any negatively towards the provider. Your signature is your bond, and hence you need to accept full responsibility for it.

In summary, contracts are intended to help service and/or product provision experiences to go well and to protect the parties in case something doesn’t go as expected, and gives rise to a complaint and/or legal claim.

CONTRACTS: Use them. Read them in detail and seek professional advice.