Put it in writing for clarity

David Canton - for the London Free Press - July 29, 2006 Read this on Canoe

Many think the value of a written agreement is to defend your position if a business relationship goes bad and ends up in litigation.

The real value of a written contract goes far beyond that. A well-drafted and negotiated agreement can prevent litigation because of the clarity it brings. It also can help the parties understand the arrangement along the way if the individuals who initially made the agreement are no longer involved. Think of it as corporate memory.

Entering into a written agreement does, however, have a much more fundamental purpose -- making sure the parties are actually in agreement in the first place.

Every business lawyer can tell stories where clients say they have reached an arrangement with another party and they merely need the arrangement to be documented. Your client says there are no contentious issues.

The lawyer drafts an agreement that fits the client's description of the arrangement. The first reaction from the other party is: "That's not how we figured the deal."

It's not that either of the parties have done anything wrong or tried to take advantage of the other. It's simply that until an agreement clearly sets out each party's obligations, both parties may have different views of the arrangement.

It's much better to have that happen up front than after the services or arrangement is underway. It allows the parties to sort out the issues and come to a true meeting of minds. If all else fails, the parties can part ways before they get started.

When drafting and negotiating agreements, the best long-term result is not where each party tries to beat the other into submission or extract every last concession or dollar. The best long-term result is the most mutually beneficial arrangement.

Another common contract faux pas is where the parties blindly use a precedent to document a deal without considering what the new deal is or without getting legal advice.

A precedent document can be a valuable starting point or checklist for contract issues, but we should not be slaves to them. The entire precedent should be reviewed to determine how applicable it is to the situation at hand. The best legal drafters will remove, shorten or amend to fit.

A good test to see if one is on the right track is to have someone read it who is not familiar with the arrangement. Anyone knowledgeable about the subject should be able to understand the arrangement easily. Even someone not familiar with the subject should understand the gist of the arrangement.

These principles apply to any type of business dealings, whether it is for the supply of goods or services, a joint venture, a technology licence or other arrangement.