Here at the-Coaching Blog-run by Gerard O’Donovan, our aim is to constantly bring value to those seeking to improve their lives. Therefore we have a policy of publishing articles and materials by guest authors whom we value and appreciate. Today’s guest author is Janine A. Schindler (USA)
Doing business is about agreeing with what you are going to do for your customers in agreement for their payment. An agreement is any understanding or arrangement reached between two or more parties. A contract is a specific type of agreement that, by its terms and elements, is legally binding and enforceable in a court of law. So why do we need contracts and agreements? Back in the “olden days,” there were few written business contracts. Many businesses and personal deals were done with a handshake. And if there was a problem, the two parties could take the issue to a court, who would hear it even if the contract was not put into writing.
Today, although a verbal contract is still legal, most contracts are in writing. Contracts are very detailed these days, and every effort is made to make all possibilities clear. In addition to being clear, a contract must meet certain criteria to make sure it can be enforceable. A contract that is enforceable can be taken to court for a decision on a disputed item. If a contract does not have the essential ingredients, it is not enforceable.
Most contracts never see a courtroom and they could easily be verbal unless there is a specific reason for the contract to be in writing. But when something goes wrong, a written contract protects both parties. If one party to a valid (enforceable) contract believes the other party has broken the contract (the legal term is “breached”) the party being harmed can bring a lawsuit against the party who it believes has breached the contract.
The major challenges I have seen within the Independent Ethical Review Board during the 10+ years I continue to serve stem from contracting or lack of clear contracting. Our International Coach Federation Core Competency #2 states:
Terms and conditions set out the rules by which you will both play by. For example, what rights you have if things don’t turn out like you agreed. They protect you if things go wrong and reassure the customer they are dealing with a business that will treat them fairly. Your conditions must be fair otherwise you can’t rely on them.
So what makes a term fair or unfair? A fair term strikes the right balance between the rights and obligations of the business and those of the customer respecting both of their relevant interests. An unfair term tilts that balance too much in favour of the business to the disadvantage of the customer. You may enforce your terms and conditions by asking them to sign, but you can only enforce them if they are fairly even if your customer has signed off on them. Fair terms will help you prevent disputes, save you time, protect your business if things go wrong and are good for your reputation. If you are unsure if a term is unfair you can seek legal advice.
Although oral agreements are legal and binding in many situations, they’re often difficult to enforce in court (and in some situations, they aren’t enforceable at all). In the business world, most agreements should be in writing even if the law does not require it. A written agreement is less risky than an oral agreement, because you have a document that clearly spells out each party’s rights and obligations in case of confusion or disagreement.
Contrary to what most lawyers think, you don’t need a lot of “heretofores” and “party of the first part” legalese to make a contract enforceable. Instead, create short, clear sentences with simple, numbered paragraph headings that alert the reader to what’s in the paragraph.
Don’t waste time negotiating a business agreement with a junior person who has to okay everything with the boss. If you sense that this is happening, politely but firmly request to be put in touch with the person in charge. Make sure the person you negotiate with has the authority to bind the business and has a vested interest in making sure the business performs its obligations under the agreement. If you’re not sure who that is, ask. In a smaller business, it might be one of the owners; in a larger organisation, it might be a chief executive officer or chief operating officer.
You’d be surprised how often businesspeople get this wrong and how important it is. You need to include the correct legal names of the parties to the contract so it’s clear who is responsible for performing the obligations under the agreement (and whom you have legal rights against if things go wrong). For instance, if a business is organised as an LLC or a corporation, identify it by its correct legal name –including the Inc. or LLC suffix — not by the names of the people who are signing the agreement for the business.
The body of the agreement should spell out the rights and obligations of each party in detail. Don’t leave anything out; if you discuss something verbally and shake on it, but it’s not in the contract, it will be next to impossible to enforce. In the world of contract law, judges (with a few exceptions) may only interpret a contract from its “four corners,” not from what the parties said to each other. If you forget to include something, you can always create a short written amendment. Or, if you have not signed the agreement, you can handwrite the change in the contract. If parties initial the change, it becomes part of the contract.
Specify who pays whom, when the payments must be made, and the conditions for making payments. As you might guess, money is often a contentious issue, so this part should be very detailed. If you’re going to pay in instalments or only when work is completed to your satisfaction, say so and list dates, times, and requirements. Consider including the method of payment as well. While some people might be okay with a business check or business charge card, others might want a cashier’s check or even cash.
It makes sense to set out the circumstances under which the parties can terminate the contract. For instance, if one party misses too many important deadlines, the other party should have the right to terminate the contract without being on the hook legally for breaching (violating) the agreement.
Write into your agreement what you and the other party will do if something goes wrong. You can decide that you will handle your dispute through arbitration or mediation instead of going to court, which takes up a lot of time and money.
If you and the other party are located in different states, you should choose only one of your state’s laws to apply to the contract to avoid sticky legal wrangling later. In addition, you may want to specify where you will mediate, arbitrate, or bring legal actions under the contract. This will simplify your life if a dispute does crop up.
Often, when one business hires another to perform a service, the other business will become privy to sensitive business information. Your agreement should contain mutual promises that each party will keep strictly confidential any business information it learns of while performing the contract.
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