You may not see them, but contracts are everywhere. Practically every transaction is a contract, whether or not it’s formally written down. When the transaction is especially important or valuable, we take the trouble to write it down. Typical examples are contracts for employment, leases, selling a house, forming a business, and selling goods or services.
When you need a written contract, you may be tempted to do it yourself by finding a form on the internet. You may even use artificial intelligence to try to customize it. You may think you are saving yourself time and money, but most likely you’re not. An attorney, and especially one familiar with your line of business, can draft a contract that best ensures that you stay out of trouble, avoid fights, and get paid (or get what you paid for).
Here is what an attorney-drafted contract can offer you:
Clarity. An attorney-drafted contract will clearly set forth the roles, rights, and duties of each party, as well as procedures to be followed.
Example: You and a friend start an auto repair business. Which one of you stays in the garage with the wrenches, and which one of you goes out in the field to drum up new business? Who orders tools and parts? Who is responsible for collecting receivables and paying bills? Or does only one of you work, and the other is just a silent investor? If you have a written contract describing the roles, it is easier to hold the other person accountable.
Example: You hire a company to build and maintain your website. If you don’t like what they’ve done, how do you get it changed? How long do they have to make the change? How many changes do you get without added costs? Establishing the procedure ahead of time can prevent arguments later on.
Memorialization. A well-drafted contract will accurately describe the parties’ intentions when entering into their transaction.
Example: You give $100,000 to an entrepreneur. Was that an investment in exchange for equity in the company? If so, what percentage of the company’s equity? Or was it a loan? If so, when does the loan have to be repaid, and what is the interest rate? Or was it repayment of a prior debt? Was the repayment in full or only partial? Explaining why things were done frequently helps prevent arguments or resolve them.
Breach of Contract. An attorney will clearly define what constitutes a breach of contract, and what does not. The attorney will also add a requirement that you’ll be notified of a breach, and have a reasonable opportunity to fix it.
Example: The lease for your apartment states that non-payment of rent is breach of contract. An attorney can suggest you ask for written notice of any breach, and then a reasonable time in which to pay and cure the breach.
Example: Many contracts allow a party to terminate a contract if the other side declares bankruptcy. However, bankruptcy does not automatically mean that a party stops doing business, they are just reorganizing. Perhaps bankruptcy should not be a breach of contract. This is a topic to discuss with an experienced attorney.
Law, Venue, and Costs. An attorney can draft beneficial provisions concerning whose state law will govern the contract, the court where disputes will be adjudicated, and who bears attorneys’ fees and court costs. Provisions like these can have a dramatic impact on whether or not to litigate, the costs of litigation, and the likelihood of success.
There are countless other ways an attorney can protect you with well-drafted contracts. Generic contracts just don’t address your specific situation and needs. This can result in confusion, disputes, ruined friendship, and possibly even litigation. Compared with these costs, well-drafted contracts are a very wise investment.
This is not intended to be legal advice; you should contact an attorney regarding your specific situation.
Gary M. Schuster is a partner at J&G Law concentrating in business and nonprofit areas of law. He can be reached by phone at (845) 764-9656 or by email.