Contracts: Getting the Deal You Think You’re Getting

By Michael D. Cross, Jr., J.D.

It’s annoying to enter into a “great deal” only to discover later that you’ve not received what you expected. It can be devastating for a small business that has devoted a lot of time, energy, and expense to a project to learn a loophole exists and it will not be paid for all the work that has been done. There are a few things you can do, however, to decrease the possibilities this will happen to you.

First, make certain your contracts are in writing. Although as a matter of law most oral contracts are enforceable, it can be very difficult proving the terms of a contract to a jury, especially when the other person explains the contract in completely different terms. When I’m asked by someone whether they can prevail in a lawsuit regarding an oral agreement, I usually respond by asking them to walk down the street, tell their story to 12 strangers, and ask their opinion. Though it sounds somewhat silly, remember that if you’re ever in court, the 12 members of the jury will likely decide the terms of your contract.

Second, make sure you know with whom you are contracting. More specifically, make sure you have the exact name of the person or business entity. Every single state maintains a listing of all corporations and limited liabilities companies (LLCs) that are authorized to do business. This list usually is maintained by the Secretary of State’s office and is available via the internet. Make sure you can locate the name of the company with whom you’re contracting with the appropriate authority. If you cannot, require the company to produce a copy of its articles of incorporation or corporate charter.

Third, don’t believe in “Standard” contracts. Anyone can call their agreement a “Standard” contract. I’ve done it before. All that “Standard” means is that it is the agreement the company generally requires. Don’t fall for this trap. Make sure the contract says what you need it to say.

Fourth, be specific and be detailed. We live in a complex world where many things can happen. If an agreement is short, it does not address all that may occur. When reviewing a contract, ask yourself what happens “if.” For example, what happens if an invoice isn’t paid? What happens if someone dies, becomes disabled, or files for bankruptcy protection? What happens if the legislature begins regulating your business or makes your business activity unlawful? What happens if there is a natural disaster, terrorist event, or boll weevil infestation? (All right, perhaps that last one won’t effect your situation.) The key is to make certain the contract addresses all reasonably foreseeable events.

Lastly, if the deal is important, consider having an attorney who works with contracts often review the document for you. There’s an old saying, “An ounce of prevention is worth a pound of cure.” Similarly, an hour of your attorney’s time reviewing the contract may be worth 100 hours of your attorney’s time litigating regarding the contract.