21ST CENTURY BUSINESS: WHY DEALS BASED ON HANDSHAKES JUST DO NOT WORK ANYMORE.
Maybe it was your father, or perhaps it was the older man you met who mentioned to you he was an “old school businessman”. In any event, at one point or another as a business person you have heard, “I remember when a deal was done by a handshake.” So, can you still follow the footsteps of the “old school” business person with dealings of another without a contract or without paperwork? Yes, but why would you want to when the risk is total loss? It is the 21st century, and business today is done by contract. Let’s understand why…
BENEFIT OF A CONTRACT
Contract drafting is performed to outline and incorporate the understanding and dealing between the parties to the agreement. That requires a “meeting of the minds”, whereby, the parties to the agreement find a common ground and enumerate that agreement in writing. The lawyer preparing the agreement includes legalize over and above the mutual understanding of the parties, and this lays out what occurs in the event of a contract dispute. The parties conduct business in accordance with the contract draft. Where does the “benefit” come into the picture, because all you have read so far is cost, i.e.agreement preparation or agreement drafting by counsel?
Today is truly the “business of tomorrow”, leaving out the “handshakes of old.” The art of the handshake deal is over where when there was a dispute, the parties worked out the dispute without court. Now, contract disputes are resolved through contract litigation, or the threat of contract litigation. It is truly a different world, and unlike what you might have heard, it is not because of the lawyers. Professions grow based on demand, and with the ever growing changes in business, making cottage industries full blown industries with the internet and world commerce within personal grasp, more and more people are attending law school, graduating and become licensed contract attorneys. Now, if your contract to “do” business with another is not immortalized by written agreement you could be in an endless scope of contract litigation through a “he said, she said” argument that the Judge or Jury is trying to figure out where the common ground was in the deal between the opposing parties rant and rave advocating a one sided deal to their respective benefit.
A contract may cost some money for a contract lawyer to prepare, but can save you the headache of an incalculable retainer down the road if the agreement is breached requiring commercial litigation. Contracts between companies governing the sale of product and or services protects the parties from one another, not just against each other. I already mentioned that it reflects the meeting of the minds of each party, but it also includes those elements that truly reduce the cost of commercial litigation if a dispute ever arises out of the performance of the agreement.
DETRIMENT OF NO CONTRACT
If you engage in a deal with another without a contract, then you leave yourself to the mercy of the other person’s contract claim… and, yes, you read that correctly, their contract claim. You might say, the law is to find the truth… no, the law is to find justice, and whether it is justice or the truth, it is what comes out in the end, not the beginning. It is each party’s version of the truth and what justice they feel they deserve that comes out at the start of business litigation. What does that risk? For one, you could end up hiring a contract litigation lawyer in an entirely different state that you had expected because the contract litigation was filed in the home state of the opposing party, something that all contracts include, “Contract Jurisdiction Waiver”. Moreover, you could be litigating contract claims over performance of the agreement that you never agreed to perform. Bottom line is that a “handshake deal” is exactly that, a deal without any “Agreement”, that “Agreement” being a contract.
Life lessons can only be learned by example, so let’s dig into one for business disputes without a contract: “I will give you 10 apples for 5 dollars this month and will continue sending apples to you each month in exchange for payment, let’s shake on it”. First two months, you receive 10 apples and pay 5 dollars, then all of a sudden on the third month, you get 6 applies, and you pay 3 dollars. You then receive a demand letter for payment of 2 more dollars from the opposing party. Of course, you feel confident that you are safe and wholly correct in your position from any verdict or judgment by the Court, after all, the deal was 10 apples for 5 dollars, so how could he demand 5 dollars for 6 applies? After all, you even “shook hands on the deal”.
Despite your undivided confidence that you are on the right side of this business dispute, you get served with a lawsuit for breach of contract and commercial collection of the unpaid sum of 2 dollars. The allegation is that the agreement is to pay based current fair market value of the apples, which one month was based 2:1, and three months later, 6:5, which is current industry standard. You read the complaint and say to yourself, “Hey, that wasn’t the deal”. However, who is to say what the deal is when it is a binding agreement based on a handshake? The party suing you is now claiming that he agreed to sell you apples based on a fair market value, and on the third month, the cost increased resulting in a higher price per unit. With just a handshake, nothing more to expand upon the scope of the deal, and the complete absence of a contract draft, there is nothing more to rely upon other than a “he said, she said” argument and what will most likely be two party’s completely independent understanding of the deal. Interpretation is a big part of determining who is right, who is wrong, and what is equitable, between the parties, and without a business contract agreementyou are guaranteed two wholly diverse interpretations of the business arrangement.
COLLECTION& BUSINESS LITIGATION
Contract litigation and corporate collection is not really litigation separate from business, it is an everyday risk of doing business; meaning, with the sale of product and services a business person considers the cost of litigation to protect against breach. The best means of preserving cost basis is to incorporate the cost of a contract draft by a contract drafting lawyer to ensure that the deal between yourself and the third party business is in writing. What is the benefit of you drafting the agreement rather than the other party’s contract drafting attorney? Clearly, the agreement drafted by your corporate lawyer will include terms more favorable to protect you from loss.
A business contract draft for this purpose is inexpensive, especially compared to the commercial litigation you would need to pay for without a commercial contract. Most beneficially, in most cases, you can utilize the contract as a template for each corporate transaction you engage for that same product and service with third parties or other businesses.