Avoiding Legal Headaches

Avoiding Legal Headaches

Advice which can save you a bundle down the road...

Get it in Writing.

Sure, sure. You have heard it a thousand times. Ever wonder why? Because verbal agreements, while sometimes valid and binding, are horrendously expensive to prove and ruinously costly to litigate. Imagine the difference between suing for breach of a one page written loan agreement, signed by the parties, and an unwritten partnership to restore a house and sell it for, say, a 60/40 profit split.

First, the written loan agreement. Prove that the other party signed it. Then debate the meaning of any vague or illegal terms within the contract. That's pretty much it, a manageable case with relatively little extraneous cost. Even better, the document may have an attorney's fees clause, making it more economical to sue on.

Now for the verbal partnership. Multiple 8 hour depositions of each partner, deposition of vendors and customers, buyers, real estate agents, and others who can prove the existence and alleged terms of the partnership, discovery and research of all the bank account documents and entries for further evidence of the partnership and proof of damages, expert witnesses to asses damages, you get the picture. Heavy costs and fees, just to establish the nature of the partnership. Avoid this by always getting agreements in writing, preferably drafted by an attorney.

Three Big Benefits of Written Contracts

Some think a contract has only ONE real benefit, making it easy to sue. Yes, this is a prime benefit of a good contract drafted by a business lawyer. But there are two more huge benefits, both of which have nothing to do with litigation or trust. The first additional benefit has to do with thoroughness and completeness of planning. The mere act of trying to write up an agreement forces you to be clear and specific, and the process almost always leads to noticing many potential issues and topics which must be addressed. Written contracts therefore are more complete agreements and deal more comprehensively with the subject. Verbal agreements rarely are so detailed and complete, because they are just too easy and require less thinking. Keep this special benefit in mind: written contracts make you think more completely and plan more specifics about the whole arrangement. This reduces trouble later.

A second big benefit revolves around the human weakness of memory. Even when the parties have the best intentions and excellent planning skills, memories are never perfect and over time even the best and clearest verbal arrangements can be partially forgotten or imperfectly recalled. Worse, the verbal agreement is extremely hard to teach to third parties who may need to rely on it, such as a new business partner who needs to know the old arrangement, or an accounting staff who needs to implement it. Writing the agreement protects against the fact, not the possibility, that our memories deteriorate over time.

You can use this reason to persuade reluctant people to enter written agreements. Some people pride themselves on doing business 'on a handshake' or using 'trust' instead of written contracts. Trust may be fine, but memory failure happens to everyone and is nobody's fault. You can argue that a written contract does not imply that you don't trust each other, but rather that you don't trust your own memory. This takes the trust issue off the table and lays the basis for creating a written contract with someone who otherwise might refuse a written contract out of pride or habit.

Contact a Denver Business Lawyer at The Vasilco Law Group, P.C. for legal counsel and litigation representation.