Want Enforceable Contracts? Step One: Use written ones!

I am asked contract questions by small business owners all the time. Basically the owner invariably wants to know, “Would my contract stand up in court if I have to sue or get sued?” My response is usually to ask (lawyers have a genetic defect that makes them answer questions with questions) if they always have a new contract signed for every job, with every customer and if they can find all their contracts when they need to? This is usually met with a long pause and then a look that’s something like, “He makes a living doing this???”

But the real reason I’m asked the question in the first place is that most small business owners (fortunately) don’t get sued, or have to sue, too often. That means they never have their contracts tested trying to enforce or defend one. Understandably, it would be comforting to know if, after all the hassle that can be inherent in getting clients to sign a written agreement, if it is even enforceable anyway.

Some people seem to think that if they show me their contract, I can pull out the crystal ball they give all of us in the second year of law school, and after I peer intensely into it, a before-then-unknown future is revealed to me. Of course, the future revealed takes place in a courtroom with a Judge ruling on the validity of the guy’s contract. Unfortunately, I must’ve missed class the day the crystal balls were passed out, because I don’t have one and I’ve never been able to do this.

I suppose it’s easy enough to just answer with a classic. Like rattling off something about a contract requires an offer and acceptance with valuable consideration exchanged and a meeting of the minds. But this answer seems to draw another look that indicates my ability to financially support myself is seriously being questioned. To avoid this constant questioning, I usually try a different approach.

Control

I have never seen a perfect contract that will be guaranteed to be upheld in every imaginable, unknown factual situation that may come up. My prediction is usually worthless in the end (particularly when they don’t show me the contract) and I think the focus should be on a different aspect of the contractual relationship that’s controllable: It’s physical manifestation.

Of course it is best to not use the contract you found on the internet that seems close to a good fit. Or better yet, don’t use the contract you cut and pasted together from many contracts you found on the internet. Make sure you have a solid agreement that was at least reviewed, if not written, by a lawyer with contract experience. It is a critical part of getting paid for what you do after all and not the best place to cut corners to save a little money (Grandma called it pennywise and pound-foolish).

The most important thing is to make sure you require a signed contract before starting any work on any job . Especially with existing clients. It is when you deal with people you think you know that most people get lax and don’t get a signed agreement. It is also when you will let your guard down and tend to have your larger credit lines extended. It isn’t a coincidence that people behave a bit differently when they know they have a signed agreement with you.

Because you have done business with the client before and for awhile, it is only natural to get a false sense of trust built up. Then you get sloppy (or lazy or don’t want to offend) and you’ll let them go a little longer or deeper with you on credit. But don’t do it. Guard against this.

This is when you have the most exposure. And it is when it hurts the most if a dispute comes up or the deal goes south or for some other reason the client can’t or won’t pay you. This is when you look back in the file after trouble has begun to find the contract it never seems to be there.

There is a future I can see and one I can guarantee will come to pass. Without that signed contract I”ll guarantee a future that is going to be harder and more expensive when you try to sue the contracts client. Without that signed paper, you probably lost your ability to collect the costs of collection, including recouping any of your attorney’s fees. Or worse, now you can’t prove it at all if the formerclient can’t seem to remember anything at all about this account or the terms you’re talking about or who the hell you even are?

My point is that no matter what type of contract you have it can be completely unenforceable if it is unused or goes unfound or is unsigned. The most important issue for a small business owner to worry about is actually using contracts religiously on every project and always requiring a signed contract for every job, from every customer, on every account and in every situation. At least this way when you do need to sue something out, or worse yet you get sued, you’ll have the best chance at prevailing. And prevailing in the most effective, efficient and economical way possible.

MKT

BTW: Yes, oral contracts are valid in Minnesota and can be (and are) successfully enforced. It is much more difficult and expensive to enforce an unwritten agreement if the other party denies the agreement or disputes the terms and conditions that you believe were agreed upon. Oral contract cases can (usually do) devolve into messy “he said-she said” situations that are decided on highly subjective credibility determinations alone. Don’t bet on that one.