29/04/2010

Here’s a sad story with an important moral – always ensure that you have a written agreement whenever you engage in an important business transaction.

 

Frank was furious.  “They gave me consent to use their name in the website address and I’ve worked hard to make the site really popular.  Now they say they want the name back!! It’ll destroy the website’s business”.

 

Frank wanted to know if his overseas supplier could simply claw back the consent they’d previously given.  Our first question was obvious. “Have you got a copy of the contract we could have a look at?”  The answer was astonishing.  “We didn’t bother with a written contract.”

 

“Let’s get this straight”, we said. “You’ve embarked on a multi million dollar enterprise with no written contract.  Why would you do that?”

 

Frank pleaded that it was industry practice, that it was commercially more practical, that it would have taken more time, that it would have cost more – in short anything he could think of to excuse the inexcusable.

 

Let’s not mince words.  It is inexcusable for a business to expose itself to major cost without having a written agreement with the other main players in the transaction.  If Frank had been an employee of a big business, instead of the owner of his own business, he would’ve been sacked.

 

And yet in 30 years of legal practice we’ve seen many other examples of the same thing.

 

So why do we have written agreements?  Certainty, clarity, recollection and enforceability.

 

Certainty – putting the agreement into writing forces us to deal with all the issues. If the agreement is simply verbal then grey areas are always likely.

 

Clarity – written agreements make it easier to ensure that every possible eventuality is considered and covered so that the parties are not taken by surprise.

 

Recollection – a written agreement is clear evidence of what was agreed so that the parties don’t have to rely on memory or recollection.

 

Enforceability – the whole point is to enable parties to require others to comply with their side of the bargain.

As for Frank’s excuses, they are far outweighed by the benefits of a good written agreement.  The cost and time of preparing such documents can be managed by the selection of the right law firm (read TOWNSENDS BUSINESS & CORPORATE LAWYERS). 

 

The notion that you shouldn’t require a written agreement because it might upset the other party is a serious nonsense.  They should understand that a written agreement protects them as well.  Verbal agreements are the hallmark of scoundrels.

 

As for Frank, we’re now looking to assist him under the Trade Practices Act.  But how much easier and clear cut would it have been if he’d had a written contract? 

For more assistance and advice on your contracts, please contact Peter Townsend of TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.