It's a common misconception that contracts have to be wordy, complicated and full of "legalese" to be valid and enforceable. In reality, legal gibberish is neither essential nor helpful; the parties are more likely to know where they stand when the contract uses simple, everyday language. A simple contract is one that follows certain rules for creating a contract. As long as you follow these rules, you can write the contract any way you choose – or not write it at all.
Most businesses will draft their own simple contracts. There are lots of online resources that can help you put together a solid contract for every business situation without reinventing the wheel. The legal website Nolo, for example, offers a starter pack of legal contracts for running a small business, and websites such as Law Depot offer a wide range of attorney-drafted, fill-in-the-blanks contracts for a fee.
Where you find yourself using the same type of contract over and again, it's sensible to hire an attorney to draft the "master" contract and include the relevant language. You can then tweak the master document to fit each business scenario. For example, a company that sells replacement windows might ask an attorney to prepare a model sales contract containing all the important commercial terms and conditions. The sales team can then fill in the blanks every time they make a sale by writing in the customer's name, details of the order and the sale price.
So many things can make a contract "bad" that it is almost impossible to list them all. Generally, a business contract is bad if it:
- Is not in writing. Oral contracts are much riskier than written agreements because there's no proof of the terms you agreed to.
- Does not set out the rights and responsibilities of the parties properly so no one really knows what he's agreed to do.
- Contradicts itself or contains ambiguities. This will create unnecessary hurdles to enforcing the contract if problems arise.
- Doesn't contain an end date or a termination clause.
The problem with bad contracts is that they push the parties in one direction – towards misunderstanding and dispute. You might lose an important customer, fail to receive a payment or be forced to shut down your manufacturing operation if you wind up ordering the wrong raw materials. If you cannot resolve the problem commercially, there's a strong chance that you will end up in costly litigation. Bad contracts mean more work for lawyers and more expenses for your business.
A contract – even a simple one – is a serious promise. There can be serious consequences if you break the contract when you don't have a valid reason to do so. The first step, then, is to review the contract and look at the language. Is there a termination clause? Termination clauses are your get-out-of-jail-free card. As long as you perform the conditions of the cancellation, there should be no problems with breaking the contract.
If there's no right of cancellation, you may be able to break the contract if any of the following apply:
The agreement is "unconscionable." This means that it's grossly unfair and heavily favors one party over the other. For example, your security alarm provider may be acting unconscionably if it suddenly hits you with additional charges midway through your contract and threatens to cut off your remote monitoring service until you pay up.
The other person gives up first. If the other party backs out of the contract or stops upholding his end of the bargain, you're usually free to rip up the contract. For example, if the freelance consultant you've hired stops showing up for work, you may be able to cancel the project and stop paying her fee.
The other party breaches the contract. This happens when the other party does something to void the contract. An example would be if you ordered a custom sculpture for your lobby but the artist sold it to someone else.
The contract is fraudulent. Fraud happens when one party deliberately misrepresents the facts surrounding the contract. For example, you bought a "nearly-new" vehicle which you were told had only one previous owner, when in fact it had 10 previous owners and was unsafe to drive.
Breaking contacts is a tricky area of law. A small business attorney can help you to avoid costly mistakes.