When running a business it is important to have and use solid contracts. A solid contract is one that is:
1. In writing; and
2. Drafted well enough to accurately state ‘the deal;’ and
3. Protects your interests.
Many business owners are content to rely on oral contracts. A ‘handshake’ deal without the need for lawyers and time consuming back and forth negotiations is appealing to many. It is quaint to believe that people will keep their word, uphold their end of the bargain and operate with integrity at all times. We want to believe that of our partners and business associates.
The problem is that at the first sign of trouble a very large majority of people act only in their base self-interest. By not having a written contract detailing responsibilities and consequences, the finger pointing, he said /she said phase begins immediately, only to descend further into a morass of ill will and deep frustration. Who wins in such a scenario? Of course, the lawyers. But remember, those same lawyers now costing each party tens of thousands of dollars would have happily prepared a contract avoiding the whole oral contract mess for a thousand dollars or so.
The best statement about oral contracts comes from filmmaker Samuel Goldwyn, the ‘G’ of Metro Goldwyn Mayer, the film studio known as MGM. Goldwyn’s line: “Oral contracts aren’t worth the paper they are written on.”