Are contracts worth the paper they are written on?

Published on: 31st October 2019 18:10

To begin with it is worth remembering that not all contracts are written. We enter into contracts all the time – every time we buy something from a shop or order something on line, or get milk from the milkman, if any of them are left. Most of us will do so without even giving it a thought. And it is fair to say that despite this we all seem to get through life.

So, why bother with a contract at all, and why a written one? Well the most obvious point is that when things are done without being reduced to writing there is scope for confusion. How many times have you experienced someone else telling a story that is rather different to the way you remember it? If we write down an agreed version of events then it is difficult to later argue something else.

But, whilst writing things down is a common sense thing to do, it doesn’t explain the need for a formal contract. One answer to this is that if one is going to spend the time putting something down in writing, it may as well be one that holds up in law. Also as the stakes increase, so does the desire to have an agreed position.

To a degree this doesn’t explain the need for a contract – and indeed there are commercial organisations that have in the main done away with contracts as such, and instead have a 10-point list of agreed things instead. This is not as daft as it sounds – I have seen all too often contracts being prepared when the commercial lead has simply not addressed his or her mind to the 10 most important things to have, or not to have, or to avoid. This approach helps ensure this focus is brought to bear at a commercial level and not focused on the legals, which I would say should not be the focus of most contracts.

There are certain legal points that need to be included but in the main I would say that these are obvious and if not obvious then ones that can be found in any good contract template without needing much more thought.

So, lets just imagine then that we have focused on the main commercial 10 points and that we have used a good contract template – that’s all right? Well no, but in many cases, yes… Why do we not see more simple contracts like this then?

I have seen many contracts which drone on so much longer than they need to and often all this does is to make the contract one-sided. At first sight this might appear attractive – having a robust position taking all control. However contracts have to be agreed by all parties and adopting this approach can often lead to protracted negotiations and in some cases the break down of relations. All too often this is caused by law firms thinking more about their professional indemnity position than trying to get the deal done. It ignores commercial reality against the smokescreen of being a good lawyer. A one-sided deal is more often not a good deal – especially if there needs to be an ongoing relationship. Each party needs to feel comfortable with the deal they have done – or as I often see it both parties need to be equally unhappy to ensure a good deal is done.

So, am I saying that a written contract is a good thing? In general, yes, provided its not one-sided and not unduly lengthy. But, that is far from the end of the story. I have witnessed one party having a perfectly good contract but had it rendered worthless – all too often in insolvency situations the administrator seemingly often just ignores the contractual legal position when it suits them to do so – rendering the contract worthless to all practical purposes. Similarly if the commercial position is in reality one-sided then even the most robust contract is worth less as commercial interest will often trump legal position.

Then there is the party who, despite agreeing to a contractual position, has no intention of honouring it. Again unless there is some other leverage that can be brought to bear holding someone to a contract that they are willing to ignore is like pushing water uphill.

In all of these circumstances the weaker party will feel powerless and frustrated that they spent so much time negotiating a contract, and will be asking what is the point – is the contract worth the paper its written on?

I will leave the reader to draw their own conclusions, but whilst there can be benefits of written contracts they are not a universal cure. That said, in almost of all of the situations where one party feels powerless, I would rather have something in writing to have at my side as opposed to nothing other than differing points of view, and arguments on every front.

If you need a sensible, practical contract drawing up or advice in connection with any aspect of a contract we can help you find the right advice at the right price.