How to Contract

by Nicholas Walsh, PA

Many of the pieces I’ve written for FV touch on the trouble that comes from not having a contract. But lots of folks are not enthusiastic about making a writing that squares the deal, feeling that to do so implies distrust. I’ve seen again and again that most deals fall apart over a misunderstanding, and a good contract will prevent that. Does that mean a countersigned written contact every time you make a deal?

Some contracts cannot be enforced if not in a signed writing. With one modern addition, these are collected in a 500-year-old law called the “Statute of Frauds.” Included are contracts to sell land, to guarantee the debts of another, to make a will with certain provisions, and contracts in consideration of marriage (think pre-nups). These contracts are either unusual or it’s common sense that signatures are required. However, two others can sneak up on a person: Contracts that cannot be performed within one year (that means most employment contracts, please note), and contracts for the sale of goods of more than $500 value. Such a contract must be signed by the party against whom it will be enforced, or the contract can’t be enforced in court.

Suppose you have a deal that doesn’t need a signature but you want to get the terms down in writing, so both parties are on the same page. An easy way to document a deal is with an email or a letter that says, in effect, “Here’s the deal as I understand it” and closes with “If I missed something or if you disagree, please let me know quick.” Lawyers use this technique all the time in routine lawyer to lawyer communications.

A more formal modification of this technique is a letter or note bearing the writer’s signature and also including a “Seen and agreed” line for the other party to sign. I use such a letter to make a fee agreement with a new client, enclosing the original letter, a copy of the letter, and a return envelope for the client to mail me the counter-signed copy.

Here are a few terms to consider putting in any written contract. Suppose you sell goods or services and want to require the customer to pay your attorney’s fees if you have to go to court for payment. If you don’t put that in your contract you can’t get attorney’s fees, and if you can’t get attorney’s fees it may not be worth your while to sue. If you want interest on past due amounts, add that clause, with the specific interest to be charged. If you are dealing with a customer in another state, you might want to put in a jurisdictional clause: “Any action stemming from this contract may occur only in the state of Maine, with Maine law to apply.” Otherwise you could be sued out of state.

In a services contract, consider what happens if one party or the other wants out. You may want to allow either party to get out with 30 days notice, or provide that if a party wants out there are damages (don’t call it a penalty!) of a certain set amount.

Also consider what happens if there is a breach of the contract. Often a contract will have a default clause spelling out the consequences if one party or the other defaults. Again, sometimes the money damages are predicted and stated in the contract.

Finally, when you think you are done with the contract take it for a test drive. By this I mean jot down a list of all the things that might happen, and see how the contract performs under those facts. (Brainstorming with someone else is a good idea.) What if one party dies - is the contract enforceable against the estate? What if the materials to build a boat become unavailable, or a lot more expensive? What if, halfway through a contract to provide herring for bait, the bait buyer discovers a cheaper supply and he wants out? What if a party to a contract wants to assign his or her rights under the contract to another person? There are a million eventualities, and no contract will predict and provide for them all, but a solid contract will at least address the more likely events.

Stay out of trouble.

Nicholas Walsh is an attorney practicing in Portland. He may be reached at (207) 772-2191, or at nwalsh@gwi.net.