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Do I Really Need a Contract?

When you form an agreement with another person, you may wonder if, or why, you need a contract. After all, you know the other guy (or girl), and contracts seem so formal, like something lawyers made up. Perhaps you were recently asked to sign an agreement and wondered "Why doesn't this person just trust me?" Many couples choose not to have a pre-nuptial agreement for this very reason - it may be seen as reflecting a lack of trust in one's partner and it seems less romantic to plan for the possibility of divorce. While contracts may seem like an added burden to an informal relationship, they can clear up any potential discrepancies and help prevent future misunderstandings.

Contracts generally define the parties to the contract, provide a list of agreed upon terms for the contract performance, and explain what the parties would like to have happen in the event of a breach of contract by one or both parties. A written contract may better outline terms and ensure that both parties are clear as to what they are accepting, preventing misunderstandings down the road, however, oral contracts are also generally enforceable. Some types of contracts, however must be in writing (such as contracts for real property).

Contractual agreements have several functions. First, they clearly define a business relationship by holding each party accountable. Contracts should also plainly outline expectations and deliverables, so one side cannot come back down the road and claim an element of the contract was never discussed. They can make sure that your interests are protected and that if, for whatever reason, the person you entered into a contract with refuses to fulfill the promises they made, you have some legal remedy.

A lawyer can make sure the contract is enforceable in court and that neither side is coerced into signing. There are certain times when a contract may be considered unenforceable because of the inequities in the creation or substance of the contract. For example, a contract where one side is disadvantaged through severely unequal bargaining power or where there are overwhelmingly one-sided terms may be deemed "unconscionable," and not enforceable as a result.

A contract can also reduce potential costs from a dispute. For instance, many contracts include language, or clauses, about what constitutes a breach of contract. The contracts then provide that if there is a breach, the parties agree that a dispute should be resolved through arbitration, mediation, or in a court of law in a particular state. Mediation or arbitration may be less costly than litigation, but may not always be in your best interest. The parties could also agree that if an action is necessary, the losing party needs to pay attorney's fees. This language can create an incentive for the parties to resolve differences informally, rather than incur legal fees by litigating.

Contracts are important and vital to making business or commercial relationships work smoothly and having a well-drafted agreement in place prior to entering into a business relationship should always be considered. And yes, it is wise to have an experienced attorney review a contract before signing to help prevent problems and misunderstandings that could arise later on.

Your lawyer will draft and/or review the contract, explain what you are agreeing to, and advise you of possible pitfalls. Your lawyer can also work with the representative on the other side to negotiate favorable terms and protect your interests. The right business lawyer can protect your interests and ensure that you are getting the contract you need and setting up the business relationship for success.

For help with drafting a business contract, contact the knowledgeable Orange County business lawyers at Myers Berstein today.

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