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Contracts Are About Understanding, Not Trust

Posted By Jim On 02/28/2008 @ 6:12 am In Business | 3 Comments

There was once a time when a handshake and a person’s word were all that was needed to formulate an agreement. If promises were broken, the only recourse was through thoughtful deliberation and six shooter. Okay, I’m just romanticizing the Wild West but I do think the point still holds true. Nowadays you see contracts here, signed documents there, notarize this page and initial there. When push comes to shove, contracts are scrutinized every which way and even English grammar comes under fire. However, when all is said and done, it ultimately comes back to building relationships, reaching an understanding and then putting it on paper.

When a friend rented out a part of their home to friend, he required the renter to sign a lease. I was a little surprised. Did he not trust the renter? I was naive and thought it was a matter of trust. However, looking back, I’ve realized it wasn’t about trust, it was about reaching an agreement. The contract was there to solidify the terms of their agreement, likely negotiated over a few emails and finalized over some beers, and act as a historical record in case there were any disputes. It wasn’t there to “force” someone into terms.

If it’s in writing, you can study it and ensure it’s accurate. While you can’t ensure completeness, you can at least be sure that whatever is written down (and agreed to) is true and accurate to the best of your knowledge. Maybe there was some miscommunication or some misunderstanding, that can be clarified once the agreement is put in writing and both sides can review it.

Unless you have a photographic mind and everyone believes your memory to such, you can’t remember the exact terms of something you agreed to a year ago (or five, or ten). Let’s be honest, do you remember the exact terms of any of your leases? You probably remember how much rent was, when it was due, how much your security deposit was, and what you needed to do to get it back. Was it due the 5th of the month or the 6th? Don’t remember? That’s okay, that’s what the lease is for! You can’t remember everything and you can’t trust your memory to be 100% every single moment. You also can’t force the other party to trust that you remember everything. If you have it down on paper, you’re far better off.

Unless you use an attorney to draft up your contract, any attorney will be able to find a way to nullify your agreement. I have no background in law, I only know a handful of lawyers, but I believe that any personally crafted legal document is probably not going to stand up against the carefully scrutiny of a trained lawyer. That being said, unless you’re willing to hire an attorney on retainer to review every agreement you make, it’s more important that you build up the relationship that is clarified by a contract instead of relying on a contract to force a relationship. Also, unless you’re willing to hire an attorney to tear apart an agreement you made, you need to stress the relationship and not the sheet(s) of paper.

Contracts don’t exist in a vacuum and people have long memories and big mouths. Let’s say you screw and swindle your way out of a contract because the language was ambiguous, people will remember that and likely tell other people. If you promised to pay someone $50 and renege, people will remember for a long long time. It may not manifest itself verbally but you can bet anything that it will manifest itself on some form or another.

Build the relationship, clarify with a contract, but leave the lawyers out of it. I want to leave on this note: The contract isn’t about trust and shouldn’t be about trust, it should be about the relationship and clarifying an agreement. If you don’t trust the other party, don’t bother with a contract unless you are willing to hire yourself a lawyer and they sure would love that!


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