Most businesses have receivables. To best protect from when receivables go bad, companies need to ensure that they have teeth to their claims with strong contract service agreements. A strong agreement is a simple way to protect your company in the event a client neglects to honor the terms of the partnership. Litigation involving a written contract always results in a hindsight review of the document itself. Below are five guidelines to assist you in drafting an enforceable, plain-English business contract.
1. Get it in Writing
While in most cases oral agreements are legal and binding, they are often very difficult to enforce in court— and in some situations, they aren’t enforceable at all under the Statute of Frauds, which provides that certain contracts must be in writing, including contracts that: (i) cannot be performed within one year, (ii) are for the transfer of an interest in land, (iii) are for the sale of goods totaling $500.00 or more and/or in which one party becomes a surety/guarantor for another party’s debt or other obligation. Written agreements are less risky than an oral agreement, since the document itself clearly spells out each party’s rights and obligations, thereby serving as a guide to avoid confusion or disagreement.
2. Identify Each Party Correctly
Make certain you include the correct legal name of the parties to the contract so it is clear who is responsible for performing the obligations under the agreement (and who you have legal rights against if things go wrong). For instance, if a business is organized as an LLC or a corporation, identify it by its correct legal name—including the Inc. or LLC suffix. You can find this information by searching the office of your state’s Secretary of State Business Services Department or requesting a Certificate of Good Standing from the business entity. Do not identify the business entity by its ‘common name’ or by the names of the people who are signing the contract for the business entity.
3. Follow the KISS Principle— Keep it Simple
Contracts do not need a lot of legalese—such as heretofore or ‘party of the first part’—to make them enforceable. A contract should consist of short, clear, and simple sentences with numbered paragraphs and simple headings that alert the reader to what is contained in the paragraph. If you have any concerns with your ability to draft a contract, hire an attorney. A small investment in the beginning will save you significant costs and expenses in the future.
4. Specify Payment Obligations
Payment is often a contentious issue, so you should be very detailed in outlining the obligation and duty to make payments under the contract. The contract should specify (i) who pays whom, (ii) when the payments must be made, and (iii) the conditions for making payments. If the contract allows for installment payments, or payment only when work is completed to the satisfaction of one party, specifically identify the type of payments to be made, listing dates, times, and requirements for payments. You may also want to include the method of payment, such as certified funds or ACH/Electronic payments. While some people might be okay with a business check or business charge card, others might want a cashier’s check or even cash.
5. Spell Out Damages
The contract should spell out whether attorneys’ fees are included in damages. In the United States, the “American Rule” provides that absent specific authority allowing for the award of attorneys’ fees, such as a statute or written contract, each party involved in litigation is responsible for paying its own attorney’s fees. Contractual provisions allowing for an award of attorneys’ fees are usually read to apply to the ‘prevailing party’—the party that successfully brings or defends a complaint. Before including an attorneys’ fee provision in a contract, you should perform a risk/reward analysis to determine whether or not to include such a provision. At a minimum, an analysis should look at the total value of the contract compared with the potential cost of engaging an attorney to enforce the contract in the event of a breach.
Reach Out for Assistance
If you need assistance drafting a contract, Markoff Law LLC has decades of experience and may be able to help or direct you to a resource relevant to your needs and location. Our firm has built long-term relationships in its over forty years of service, which have earned us the recognition, respect, and trust of our clients. Headquartered in Chicago with multi-state satellite offices, Markoff Law provides legal collection, litigation, and judgment enforcement services throughout Illinois, Wisconsin, Michigan, Kentucky, and Ohio. Email [email protected] or call (312) 698-7300 for a brief consultation about your needs.
About Markoff Law LLC
Markoff Law LLC is a forward-thinking firm with a history of experience and success representing lenders, businesses, and creditors in the Midwest. Established on April 1, 1980, our specialty is the practice of creditors’ rights, collection law, and enforcement of judgments. Through the decades, Markoff Law has earned and maintained a reputation for excellence, honesty, and integrity. Our thought leadership and adherence to industry best practices have established us as a leader within the accounts receivable management industry. We firmly commit to setting and achieving the highest standards of excellence.