San Diego attorney

	Home
	Articles
	Business Entities
	Contact
	FAQ
	Interviews
	Sites We Like
	Testimonials

Contracts: Establishing Your Future

Every client says it; "Do I really need a contract?" The answer is "YES, YES and YES!" In this article, we explain WHY you should use contracts.

What Is A Contract?

Simply put, a contract is an enforceable agreement between two or more parties. The contract contains the promises made by the parties to one another, which is legally known as "consideration." These promises define the relationship being undertaken as well as what will happen if the relationship doesn't work out. If one party fails to act according to their promises, then they have "breached" the contract and can be found liable for damages. The damages typically equate to what the non-breaching party would have received if there had been no breach.

Oral Contract v. Written Contract

You attend a cocktail party with a friend and meet someone that wants you to provide them with your product. Over drinks at a party, you agreed to provide him with 1,000 of your products in exchange a discounted price. You sealed the deal with a shot of something you don't want to remember and the old, "I'll call you when I get back to…" You have created what is known as an "oral contract." He has promised to order products from you and you have promised to provide him with a discounted price. Is the agreement worth anything?

Unfortunately, the answer is probably no. Why? In most states, oral contracts are not enforceable if they carry an inherent value in excess of $500. The reason for this is that it is so difficult to establish the terms of an oral contract in a dispute that the legal system tries to discourage them. In fact, this legal restriction is generally known as the "Statute of Frauds". Turning to the above example, what if you thought you were going to give a 10 percent discount and he thought it was 25 percent? What if you can't resolve it and he insists there was never a deal? You will end up in court with the dispute coming down to which party the judge or jury believes. Are you really willing to take that gamble? You should not be.

With a written contract, you can point to clause 4 in which it clearly says you shall give a 10 percent discount. If he refuses to pay and makes you go to court, he is asked if his signature is on the bottom, the clause is read and you win. The contract should also contain a clause requiring the "prevailing party" to be reimbursed for their attorneys fees and costs. In short, he has to pay your bills as well.

An additional benefit to a written contract is using the negotiations as a means for finding out if the other person is blowing smoke. I realize you will be shocked to learn that you will run into less than honest people in business. In negotiating the contract, very specific requirements are put in writing. What if the other party starts squirming? It is probably a pretty good sign he may be unable to meet his obligations. Might that give you pause before you commit to sending him a lot of product and tying up your inventory? By finding out this information before you start doing business, you save yourself a lot of headaches.

In summary, a written contract should be a mandatory bullet in your arsenal. Using written contracts will allow you to clearly layout your business efforts and avoid hucksters. By using written contracts, you create protection for yourself in the future if something goes wrong. It will help you sleep better at night, particularly in light of Murphy's law.

Send to a Friend

The above discussion is intended to be a general commentary on contract issues. Each situation is different and this article is not intended as legal advice for your specific situation. Further, nothing in this article is intended to create an attorney-client relationship. If you have additional questions, please contact Richard@SanDiegoEsquire.com.