Lesson 57: Make Contacts, but Also Make Contracts

From the Business of Business section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).

A common cause of legal problems in business deals is the failure of the parties to write down their agreement or, in other words, to make a written contract. It is human nature to believe that you and your business partner(s) fully understand each other, especially when you are at the beginning of a business relationship. You believe you can trust the other person to live up to his word. You are happy that you are in agreement with the other person and that you are embarking on a mutually advantageous venture.

However, the circumstances of people’s lives and their businesses change. Interest rates, growth rates, technology, and prices of materials are just a sampling of business variables that tend to change over time. A change in a partner’s life will affect you, too.

The memories and interests of owners are also inclined to diverge as a business progresses. You might walk into the office one day and see that you no longer see eye to eye with your associates. Then small disagreements grow into large disagreements and you find yourself in a lawyer’s office. For example, you and your partner may disagree over which of the out-of-pocket expenses you each have incurred for gas, hotel bills, supplies, etc., should be reimbursed from business assets. Without a written contract, disagreements are likely to arise.

The Lesson: Without a written contract to refer to, your case in court would simply amount to a swearing contest. Then you will kick yourself for not putting your agreement in writing.