As much as everybody loves a handshake deal, those sorts of deals seldom work out in the long run. These sorts of oral promises that are not documented in writing create expectations by both parties, and since the contract was never in writing, neither party ever got a chance to really look at those expectations. This does not bode well, and almost always leads to conflicts of some sort.
As such, you want to avoid any sort of oral contract. This is especially true for real estate matters, which legally require a written contract rather than an oral contract.
I have seen a lot of people encounter really heartbreaking misunderstandings (intentional and unintentional) from oral contracts. For instance, I have seen many clients tell me that they joined a someone’s business as a young person, and the business owner made them a promise that they would get a ton of money as soon as the business sold, and now the business owner is selling the business and isn’t giving the client anything.
Unfortunately, I have to break the news to these clients that unless you have some sort of written document that puts that promise down in writing, the likelihood of them recovering the money they were promised is next to nothing.
This is why it’s so essential for every aspect of a business relationship to be in writing.
Another issue that often leads to conflict is when laypeople draft contracts or business agreements themselves. As much as you think you and as smart as you think you are, you’re never going to be able to write a high-caliber, quality agreement the same way as an attorney who does this sort of thing every day. You will not know what to look out for and you will inevitably miss or confuse something that can cause massive issues down the road.
Yet another issue that can lead to conflict is failing to detail exactly what is expected of a person, especially in an employment agreement. If we’re talking about employment agreements, they need to be very specific about the specific duties of the role. For instance, if someone is hired to be in charge of business operations, what does that mean? If your employment contract has general language rather than specific language and your employee fails to fulfill their duties, you will have a much harder time proving that they are in breach of contract if the contract is vague.
When it comes to conflicts between business owners, the most common disputes I see are based in one or the other owner making a handshake deal and not clarifying something or putting it in writing, and then facing the consequences of the ensuing misunderstanding. For instance, if one person wants to leave and sell their interest to somebody else, or give it to their family member, and the other business owner is not happy with that, it can cause conflict. Many times, this sort of case meanders into some sort of settlement negotiation, in which we try to resolve an issue that we could have avoided if we had just stuck to written agreements in the first place.
So, in summation, oral promises, broken promises, and failure to detail how performance will be reviewed are the typical pitfalls in any agreement.
What Are Some Proactive Steps That A Business Can Take To Avoid Any Future Litigation?
There are a number of proactive steps that you can take as a business to avoid any future litigation.
I would say that the most important of all of those proactive steps is never to make an agreement before you talk to your lawyer. Don’t be halfway through an agreement and then ask me to come in to change the terms of a deal when you’ve already signed a letter-of-intent. Bringing a lawyer in too late is like not bringing a lawyer in at all, because in many ways you are already bound by the terms of the agreement and there’s not much I can do.
So, bringing in your lawyer when you’re negotiating as opposed to when you’ve already reached an agreement is an important element in avoiding litigation.
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