A handshake and oral promise are not enough. The terms of any business arrangement must be clarified and agreed upon in writing to avoid costly litigation. However, most small business owners do not have the time or expertise to write a contract for each transaction. Christopher Marino, a shareholder at Boston law firm Davis Malm & D’Agostine, P.C., practices in the areas of litigation, business law, employment and real estate. Here he discusses why businesses need to create their own standard form contracts and what these contracts should include.
Why should businesses create their own standard form contracts?
Contracts govern the relationship between the parties and create the ‘rules of the game.’ A business cannot participate in any game unless it knows the rules, and it cannot make informed decisions without understanding the rules. If the business does not have its own standard form contract, it will need to spend time and resources to learn a new set of rules every time it seeks to enter a contract, or fail to do so at its own risk. Depending on the nature of the contract, it can be incredibly time-consuming and expensive to re-learn the rules of the game. Rather than have a different set of rules apply to every customer or vendor, and rather than having to continuously spend the time and resources to understand the rules, it is more economical and far easier to do the correct thing the first time and create a comprehensive set of rules that the business can use to govern its interactions.
What are the minimum requirements for a contract?
At the very least, a contract should be in writing. It should accurately and concisely state the agreement of the parties, and it should be signed by both parties. Other than that, contracts are fairly malleable and adaptable. They can be one paragraph, one page or several hundred pages depending on the nature of the relationship and the complexity of the agreement.
In your experience, what are the most common mistakes or omissions businesses make when creating contracts for goods or services?
One of the biggest mistakes that parties make when drafting contracts is failing to think through their exit strategies. Like a couple starting a relationship, contracting parties are often ebullient about their new relationship and the great things that will result from it. Just like with prenuptial agreements, before the troubles start, the parties can typically reach agreement on what should happen when, or if, the contract does not work out for the parties as expected. Something as simple as a termination without cause provision can easily save the parties tens of thousands of dollars in litigation costs if the relationship breaks down.
This article was written by Gillian Burdett for Small Business Pulse