If they ever existed, the days of doing business based on a handshake and a verbal agreement seem to be long gone. We regularly have clients come to our firm with disputes in which there is no written agreement. The failure to draft a written agreement often results in a complicated fact situation that has to be sorted out by our firm and another law firm. For example, we recently assisted a client who had become embroiled in a contentious partnership dispute over a small business. While we ultimately resolved the matter with a large degree of success, it would have been much simpler, and a dispute may have been avoided entirely, if the parties had formalized their arrangement in a written agreement.
The Gold Standard:
In terms of enforceability, the gold standard is usually a professionally drafted contract, signed by both parties, after having received independent legal advice. Depending upon the complexity of the agreement, such a contract might cost several thousand dollars to prepare; however, if the subject matter of the contract is valuable, this cost is money well spent to protect each party in the event of a dispute. If you’re starting a business partnership that you expect to last for many profitable years, spending some money up front will help protect that business, and will help avoid your hard work being swallowed up in lawyers’ fees after a dispute develops.
For simpler agreements, it can be surprisingly cost effective to have a contract drafted by a lawyer, and having the contract professionally drafted will provide the peace of mind that it includes all of the proper legal formalities to make it enforceable. Sadly, we often see contracts that are drafted by the parties themselves, and these can range from perfectly enforceable contracts, to ones that lack basic legal certainties necessary to make the agreement enforceable.
Reconsider DIY Contracts:
We generally recommend that people do not attempt to draft their own contracts, or pull contracts from the internet in the hopes that they can tailor that general contract to their specific needs. We have seen client drafted contracts for Canadian clients contain errors such as references to the United States Uniform Commercial Code – something that you almost certainly do not want in a Canadian contract.
A further benefit of written agreement is that good communication and clear terms help stop disputes before they start. All too often parties skirt around the difficult or contentious issues in a business relationship, hoping to avoid conflict. In reality, by not dealing with these issues up front, the potential conflict is only pushed into the future, where both parties may have spent time and money in reliance upon agreement terms that they thought existed.
As a final last resort, it can be beneficial to clearly communicate important terms of an agreement to the other party in writing, even if that written communication takes the form of text messages or emails. Text messages and emails are admissible as evidence, and we routinely utilize such documents in court to protect our clients’ rights.
The difficulty is that you cannot force terms upon someone merely by sending them a message. If the other party replies with their agreement to your stated terms, that would be beneficial. If the other party disputes the terms, then at least you have identified a disagreement early on, before time and money has been expended. If the other party just ignores your message containing the terms, and does not agree or disagree, then it may be possible to argue that they went forward with the agreement, knowing that you were relying upon the terms that you set out to them. The latter situation is a far from ideal, and if the other party does not acknowledge your terms, you should follow up to clarify your agreement, sooner rather than later.
In conclusion, beware of people who refuse to put things into writing. If someone balks at committing your verbal agreement to a written form, there is usually a reason, and it is better to find out sooner rather than later what that reason is.
If you are seeking a well drafted purchase and sale contract, partnership agreement, shareholders agreement, or other contract, or if you are involved in a business dispute, we offer a free half-hour consultation to discuss your situation and legal needs. Please feel free to contact us to schedule an appointment.