Most of the time when talking to people about business agreements the conversation often ends up being summed up as, “if I didn’t sign anything then we did not have an agreement” which is to say that in the mind of most people, a contract is whatever is signed. Well the truth is far from that.
A contract is a legally binding agreement, at least this is how most text books will define it, since it is often the case with legal aspects that things need to have a definition. Yet in my experience contracts are more than a legal document, why do I say this?
In order to understand why this is so the question one needs to ask is what does a contract mean to me?
Why contracts?
For starters in any agreement there has to be an actual agreement, but in business we want that agreement to be binding to the parties that get into it because there mostly is a lot at stake. It is this, the intention to have the law step in should a party not uphold their end of the agreement, that makes a contract what it is.
So signing it, in fact writing it is not what makes a contract a contract these just make it easy to prove the existence of a contract or the existence of an agreement. Therefore contracts can be verbal (which could prove difficult to prove) or they can be written (which I could recommend) but both are contracts.
How contracts are more than a legal document
#1 Contracts represent your business and your interest
As a business person you just don’t walk up to another business person and say “hey lets get into a contract” I mean it would be a funny thing to try though. What usually happens is that you have something that you need taken care of, this could be your need for raw material or products or even services that you are selling.
By having an agreement with the other party, you are also showing what you are truly interested in as far as that agreement is concerned. Which is why if the agreement is arrived at with a pure legal mindset, ignoring what it will make your business look like or even how your interests are going to be met, not just at the moment but also in future, you could be setting yourself up for a future problem.
#2 Contract show how easy or difficult it can be to work with you
By defining a contract as a legally binding agreement what we are saying is that the parties are agreeing to have something done and are even willing to let legal action be taken should one of them fail to meet their end of the bargain.
Now imagine how this could reflect poorly on you if instead of focusing on what you want to be done you are more interested in phrasing clauses and making the contract as iron clad as possible. Don’t get me wrong, there are moments when you want the contract to be as tight as possible especially if you suspect that the other party may look for an excuse to breach it. But this is exactly what I mean by contract showing how easy or difficult it is to work with a party. So how we draft a contract or insist it to be drawn can reflect the nature of the parties involve.
#3 They determine the speed it takes people to understand and execute the contract
At the end of the day the only thing that matters is whether we achieved what we agreed on in a given contract. Now this becomes an uphill battle if the contract itself is an obstacle to such achievement, either due to how it is managed or because the parties gives it more power than the actual work to be done.
As part of managing contractual risks it is important to have an open channel of communication with the parties you are contracting with. This way you have a relationship that sees to it that what you agreed on is done and not just a paper that one uses as a weapon to compel an action.
#4 Contracts affect how you are seen by your clients, partners and employees
Poorly written contracts say a lot about the person who came up with them especially in the modern day when litigation seem to be a choice whenever we have a disagreement (litigation should not always be your first choice when solving contractual disputes use this instead). A complex contract will also just have an adverse effect when it comes to how you are perceived. So what can you do? The answer is to always remember that in any given agreement there is only so much that the other party is going to take before they walk away or worse give you a raw deal.
So don’t look at a contract as an avenue to express all your insecurities or your adversarial tactics since this will only work to destroy the relationship you have or could have had, with the other party.
Conclusion
The point of all these is to let you know that in business agreement, the agreement comes first. What are you agreeing to? what are the parties supposed to do? how will we know when they have done it etc. Once you have all these in place a contract just act as a summary of what you are agreeing to and the legal part is just to see to it that the parties keep their word. So don’t look at the legal aspect of a contract and assume that that is the whole contract.
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