Put It In Writing: The Benefits of Written Contracts
Contracts are at the heart of much of what we do in life. For example, we enter into contracts with cell phone service providers, cable companies, contractors working on our homes, consultants providing services to our businesses, social media sites when we click “Agree” to terms and conditions of use, and car dealers when we buy or lease cars. Other types of contracts include partnership agreements, employment agreements, prenuptial agreements, mortgages, loan agreements, lease agreements, and purchase and sale agreements.
Most of these everyday agreements are written contracts, yet many individuals and businesses neglect to use written contracts for agreements in their personal lives or in their businesses. While both oral and written contracts can be enforceable under the right circumstances, it is easier to enforce a contract when the terms are clear, unambiguous, in writing, and signed by the parties. Without a written contract, if one or both parties fail to perform, the process of enforcing the contract and determining the intent of the parties becomes a game of “he said, she said,” and this can be difficult and costly for the parties involved.
For example, when one friend borrows money from another, there is often no written agreement explaining how the money will be repaid, when it will be repaid, whether interest will accrue on the loan, and what will happen if it is not repaid. Yet, how many times do we hear stories of friendships or relationships that ended over someone failing to repay money owed? This may be a simple example, but any agreement between parties can be reduced to writing to make it easier to enforce, and to make the terms of the agreement clear to both parties.
The benefits of having a written contract include the ability to define in unambiguous terms the following:
- the duration of the contract
- the consideration for the contract (in other words, the price in monetary or other terms that is given in exchange for certain goods or services)
- the obligations of each party under the contract
- how the contract can be terminated
- how disputes arising under the contract will be resolved (for example, by mediation, arbitration, or litigation in a jurisdiction of the parties’ choice)
- how the terms of the contract can be modified
Many parties choose not to spend the time or money having a contract reduced to writing either because the value of the contract does not, in their mind, warrant the time or cost involved, or because the contract is with family members or friends and they are unaware of the risks involved. Unfortunately, contracts between family and friends carry the same risks as those between strangers. Without a written contract defining the terms of the agreement, and how the contract can be enforced or modified, disputes between family and friends can quickly escalate into a chaotic and unpleasant dispute requiring significant time and money to resolve. Moreover, relationships are often destroyed in the process.
Similarly, contracts that parties consider too minimal in terms of value to reduce to writing can, over time, increase in value. The absence of a written contract to guide the parties in enforcing or modifying the contract to handle unanticipated consequences can be problematic and result in legal fees that far exceed the cost of drafting a written contract in the first place.
Investing time and money to form a solid, binding, and enforceable written contract from the start can save individuals and businesses significant legal fees and time down the road should a contract dispute arise.