Introduction

The vast majority of the work I do for developers involves contracts - reviewing proposed contracts, analyzing contracts, discussing contracts, drafting contracts, negotiating contracts and, sometimes, litigating contracts. All sorts of contracts - contracts for leases, licenses, publishing, distribution, employment, termination, confidentiality, non disclosure, non circumvention, consulting, development, buy outs, asset sales, asset purchases, stock sales, IP transfers...like I said, all sorts of contracts.

Contracts are at the core of most of the good and the bad stuff that goes with running a successful studio. A significant part of the time I spend on these agreements is with clients helping them understand what different contract provisions mean and their potential impact on the deal and the studio might be. So, I though it might be good to provide a little basic “Contracts 101" for developers to provide a little insight into the basic elements of any contract to help demystify them a little.

Basic Elements

A contract is basically an agreement between two or more parties. It can be to do or to not do something and sets out the duties and responsibilities of each to the other. It is the common agreement between the parties, what is referred to as the “meeting of the minds” that establishes the contract. Once this “meeting of the minds” occurs, the contract is formed. In general, oral contracts are just as valid and enforceable as written ones, though certain types of contracts must be written.

The term “hand shake” agreement reflects the tradition of confirming the “meeting of the minds” by the mutual acknowledgment by the parties by the parties shaking hands to seal the deal. At the core of every argument is this acknowledgment, though we usually see it in the form of a signature on the bottom line.

“Consideration” is a term used by lawyers to describe the subject matter of the contract. By that I mean whatever of value that is being delivered or exchanged. The dollar for the candy bar or money for the source code are the easiest examples. It is basically what the contract is really about and is a necessary part of any contract. Without mutual “consideration” it’s not really a contract, it’s a gift and as such may not be enforceable. Finally, the parties to the contract also must have the legal capacity to enter into the agreement. That means that they are competent to know what they are getting into. This goes back to the whole “meeting of the minds” thing...no mind, nomeeting.