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While reading the forums on Board Game Geek the other day, one poster relayed the following piece of advice. “Someone told me once that if you have to have a contract with someone, then you shouldnt [sic] do business with them,” he wrote.
Well, I am here to say that this is probably the worst advice that I’ve heard regarding whether or not to have a contract. It’s not a coincidence that the mantra of many businesspersons over the centuries has been to “get it in writing.” There are many reasons for this. What follow are just a few.
“Don’t you trust me? You have my word.”
While oral contracts can be valid and enforceable, they can present a lot of problems. First, something known as the Statute of Frauds prevents certain types of contracts from being enforceable if not in writing. These include contracts that can’t be performed in less than a year (such as a multi-year licensing deal without a termination clause) or sales of goods for over $500. Second, should things go wrong with the deal, it becomes your word against theirs. This presents serious evidentiary issues in the event of a trial.
“We are friends – why would we fight over a little business deal?”
Getting into business with someone that you know on a personal level may seem like a good idea. After all, you are friends, and would never screw each other over, right? Well, no one knows the future. Friendships, like business ventures, encounter bumps and other problems all the time. Having an agreement beforehand that outlines what will happen should things go wrong can be a huge benefit. While it may tug on the emotions, similar to a prenuptial agreement, it is better to have than not have.
“Looks like we’ve come to an understanding – it’s a deal!”
Ensuring that all of the terms of the deal are crystal clear in a written contract can be a huge determining factor in how smoothly the deal goes down. Recently, in another Board Game Geek forum thread, one poster was looking for advice on whether the definition of “sale” in the contract a friend had signed meant pre- or post-Kickstarter.
This just highlights the importance of not only having a contract (otherwise you run into the “your word versus mine” problem again), but having the contract written without ambiguity and covering all bases. This is one of the benefits of having an attorney; their job is to assume that everything will go wrong and plan accordingly.
I’d like to point out that having a contract does not automatically mean that you do not trust the other party. The third reason above should illustrate the fact that, even though two parties trust one another, they could simply have a misunderstanding as to the terms of the arrangement. So, remember to think ahead and get your next deal in writing. If you need assistance, feel free to contact an attorney.