When you practice in the area of Trusts and Wills, you are often called upon to resolve other legal problems that pertain to clients’ assets such as business law, real property law, family law, etc. So here is a post discussing a few business issues I have dealt with recently. This same post was published in our local Corona Business Monthly:
Do you have insurance? Nearly every business buys some type of insurance because it’s better to pay an insurance premium than it is to pay for a huge loss if something unexpected occurs. Taking unnecessary risks is not a smart business move.
Yet businesses regularly take unwarranted legal risks when entering into agreements without properly documenting them in writing. The “in writing” part every business owner seems to know—an agreement should be in writing. The problem arises, however, with what is put down in writing. All too often the terms of the agreement are not reflected in the written word on the agreement. I meet with business owners all too often who first show me a so-called written agreement and then quickly explain how several meaningful provisions were either left out of the document or were written down incorrectly.
Why the confusion between what we mean and what we say? Part of the problem is that language is subject to interpretation. I have litigated many business disputes that turn on the meaning of language in a document—even lawyers and judges struggle with drafting, understanding, and interpreting “clear” language.
But the bigger problem affecting business owners is lack of attention. Businesses just don’t have time (or at least they think they don’t) to sit down and craft a carefully worded agreement. In the rush to seal a deal, parties often forget to record the finer points, and sometimes even the most important points and provisions, of their agreement. And agreement terms are fluid during negotiation, so a contract drafted yesterday may not reflect the agreement today. Yet, sometimes, it is yesterday’s draft agreement that is signed without adding in the new or changed provisions.
The best advice for anyone entering into a new business arrangement is to take the time (all the time) needed to draft a proper agreement. The agreement should reflect all the major terms of the transaction and as many of the minor terms as you can address. And the language should be clear and to the point.
For example, if the parties envision one side paying the other every other week then the agreement should say “payment shall be made every other week,” not “payment to be made regularly.” And the term of the agreement should be clearly spelled out: “this agreement shall take effect on January 1, 2011 and shall expire on June 1, 2011.” In fact, the best agreements are easy, simple, and straight forward.
Unfortunately, it takes time to make language simple and it takes time to make a written agreement reflect the intent of the parties entering into it. But the penalty for not taking the proper amount of time to draft an agreement can be a huge loss of business and litigation costs, including lawyers’ fees. Poorly drafted agreements, and especially oral agreements, result in full employment for lawyers. It’s somewhat ironic that some businesses are reluctant to pay a relatively small amount to have a lawyer prepare an agreement, yet subject themselves to much higher fees, and for a much longer period of time, if a business is caught in a lawsuit due to a poorly drafted (or never drafted) agreement. That is the risk every business runs in entering into a business transaction without the proper written agreement in place.
Taking the proper time and seeking the proper advice in preparing a written agreement is a businesses’ “insurance policy” to avoid the huge costs of litigation.