My last post explored common problems with handshake agreements.
Now that you’re convinced to write stuff down, what do you write?
A contract is no good if it isn’t enforceable. To be enforceable, a contract must be made by people who are legally able to make a contract (generally, adults who understand what they are doing), must have a lawful purpose, and must have an offer, acceptance, and consideration.
An offer is exactly what it sounds like – a promise to do something if the other person will do something else. Acceptance means both parties agree to hold up their end of the bargain. Consideration is payment. Consideration can be money, a promise, an action.
The Texas Comptroller’s Office has a handout that describes the legal elements of a binding contract:
Lately, I’ve been a single question several times.
How do you enforce an oral contract?
Answer: It’s difficult but often not impossible.
The question actually raises questions: how are you going to prove you have an oral contract? Will the breaching party admit the to making the contract? Not likely. Do you have notes, emails, texts, anything in writing? Are there witnesses to the conversation? If so, are they reliable? If not, have the parties started performing?
And the questions go on and on trying to build a trail of reliable, admissible evidence to prove up the oral agreement. One must also ask, is attempting to enforce the verbal agreement in court going to be cost effective?
Of course, that depends on the agreement. It likely is not cost effective to file a lawsuit over a low value agreement, but may well be worth the time, money, and effort to enforce a high value contract. There are avenues to try before filing a lawsuit.
Sometimes, a written demand for performance does the trick. Mediation is also a less costly alternative to a lawsuit if the other side is willing to participate. Most people who ask me the question realize it would have been easier to have reduced the agreement to writing.
Thus, this series was born. I’m calling it “Writing It Down.” This series of posts will explore using simple written agreements to support small businesses.
It’s a fact that many small business ventures fail in their first year. There are tons of resources on the web about why so many new businesses fail, and I won’t attempt to recreate them here. However, I’ve noticed five things that many failed businesses have in common. The purpose of this post is to help you avoid these shortcomings when starting your business. Here they are in a nutshell:
- Write a business plan.
- Set goals.
- Get professional help early.
- Understand the difference between employees and contractors.
- Write everything down.
Show me How!