Contract Negotiations
We focus our blog on everyday issues affecting our clients. These are difficult times to say the least. The Covid-19 pandemic is paramount on most peoples’ minds because it is affecting the health, safety, and economic success of small businesses and the population at large. Companies must adapt in unprecedented fashion. They must become both nimble and innovative by implementing work at home policies, safety policies, and reallocation of duties to key personnel. Because of this, I have noticed both in my practice as well as in my clients’ ongoing business operations, that meetings are being conducted via video/telephone conferencing and that agreements are quickly negotiated and finalized during those video and/or telephone conferences. As we all know, agreements, (or contracts) are at the heart of most business dealings.
Contract law is intricate and involved. A brief blog post cannot itemize the different types of contracts, how one limits liability, or how one enforces obligations. But a blog post such as this one, can help a reader with general and practical advice on making those quick agreements potentially enforceable.
What is a Contract?
A contract is essentially an agreement between parties (people/businesses) that identifies their respective rights and duties, and which allows for those rights and duties to be enforced by the courts. Consideration must flow between the parties[1][2]. The agreement cannot be subjective. What we mean by “the agreement cannot be subjective”, is that there must be some objectively identifiable agreement outlining the specific rights and duties. If you simply believe you have a contract/agreement with another person without the objective existence of such agreement, then no such agreement exists – in the eyes of the law.
How to make a contract enforceable.
In today’s environment, the parties negotiate an agreement over a video/telephone conference call. Terms are discussed and agreed to; notes are made by both sides. The call ends with each party thinking that they have an agreement, but do they? Suppose one party delivers on the “contract” but in a manner that is different from what the other party understood the terms of the contract to be. The notes that each party took during the conference call were slightly different. Each party then argues over who was right. Do they have an agreement? Rather than determine that esoteric question in this blog post, let’s consider one small step that would go a long way towards avoiding this misunderstanding completely.
Before you end the call, confirm the exact terms you just discussed. Then, after the call is completed, send an email to confirm those exact terms to the other party. Finally have the other party confirm in an email back to you that the terms are exactly what you agreed to without any additions or exceptions. In short, write out the obligations and duties in an email and have that email confirmed.
Is this a perfect solution? No. A perfect solution would mean having your corporate lawyer draft a formal agreement including representations and warranties, waivers of liability, exceptions to performance, default provisions and the like. Do you have time for that right now? Probably not.
In order to
protect your interests, and frankly your business relationships, make the terms
of the agreement clear and have the other party acknowledge those terms[3]. This lessens the risk of misunderstanding and
makes the contract easier to implement. The respective expectations are clear
which saves money and frankly headaches.
As a bonus, your email agreement can form the basic structure of a
formal agreement to be drafted by your corporate lawyer when you have time to
do so.
[1] The traditional description for contract formation is offer, acceptance, and consideration.
[2] Consideration is a broad term which includes something of value (in legal terms), being exchanged from the person making a promise to the person receiving a promise.
[3] Do not forget to include payment terms in the acknowledgement email.