Contracts are not weapons. People often believe that contracts are tool that can be used to entrap others into doing things that they don’t want to do or to trick them into giving up something. Sure, they can be used that way but that is not their best use — and everybody involved in a transaction like that ends up poorer.
Contracts are better thought of as a collaborative tool that helps the people involved communicate expectations to one another and structure a relationship. A good contract is one that everyone agrees to, understands, and is happy to sign. A bad contract is a weapon.
What Is A Contract, Really?
At its simplest, a contract is an agreement. Everyone involved agrees to do (or not do) certain things. This involves an offer, an acceptance of the offer, a thing to be exchanged, and a mutual intent to be bound to the agreement. Any of those elements can get complicated (ask me if you want to know how), but that’s the essence of contracts.
You enter into a ton of contracts in your everyday life. They are usually not formal. If you go to a restaurant to buy a meal, you are entering into a contract. The restaurant offers delicious food. You accept the offer by ordering from the menu. You give them money and they give you food. Everyone intends for that to happen. See? A contract.
Contracts don’t always have to be in writing, and they don’t always have to be explicit. In the restaurant example, nobody had to draw up a contract and nobody had to even acknowledge that one existed. It just appeared.
But in business, contracts will often be more complicated, and that can make some people uneasy.
So Why Does A Contract Inspire Dread?
Two reasons that contracts inspire dread: they can be hard to decipher and they force people to commit. Nobody wants to commit to something that they can’t understand and nobody wants to be forced to do things that they don’t want to do.
This is why people can be reluctant use contracts; the underlying fear is that a contract will be used as a weapon in litigation. While this does happen, that is not the main point of a contract — a good contract should make lawsuits and disputes less likely, not more.
As a lawyer, I have seen that most disputes arise where there was either (a) no contract; (b) a hastily-cobbled contract; or (c) a contract that one party did not understand. That’s not the situation that you should to be in. And it doesn’t have to be, if you understand how contracts work as collaborative tools.
Contracts Are Collaborative Tools
At their core, contracts are collaborative tools. They enable us to work together by spelling out everyone’s obligations and by setting expectations. In simple cases, as with our restaurant example, the obligations are clear: if you order from the menu and eat the food, you have an obligation to pay the price for the food.
But since common situations in a business relationship are more complex, contracts have to be more complex. As the complexity increases, the amount of dense language increases. However, with some knowledge and good legal counsel, even these more complex contracts can be manageable.
Contracts seek to take account of important factors in the business relationship and make them explicit. By doing this, there is less room for disputes and misunderstanding that arise when there are mismatched expectations. When expectations are made clear, assumptions can be brought to the surface and addressed before they turn into legal fights. And legal fights are expensive.
Contracts work best when everyone involved understands what’s in them and agrees to it. By coming to mutual agreement, it is less likely that one party will feel taken advantage of or be disappointed. Even going through the process of working out contract details can be a powerful tool for communication — and good communication is the foundation for successful business.
If you want more help with contracts, don’t be afraid to ask. My firm has put together a monthly program that gives creative businesses unlimited contract reviews and attorney consultations. We have gone over tons of contracts with our clients and we would be happy to help you, too.
You can always email me directly, too: email@example.com