A lady once took to social media to call out a movie director that she did some graphic designs for in respect of an award winning movie. She claimed that her contract was cancelled unilaterally because the movie director was dissatisfied with the quality of her work. She however, later discovered that some of her work, which was adjudged unsatisfactory, was still incorporated in the movie. She was neither paid for the services rendered nor was she acknowledged or credited for her graphic work incorporated into the movie. She claimed the existence of a contract although she admitted that there was nothing written.
While there are a number of important legal lessons that can be learned from this experience, we will focus on how to ensure a contract is properly documented and the importance of always having a written contract.
A contract is a legally binding agreement between two or more parties enforceable by law. For a contract to be enforceable, one party must make an offer and the other party, to whom the offer is made, accepts it. Where the offer is made and accepted with the intention that all the parties involved will be legally bound, then it is enforceable. The intention to be legally bound is inferred from the conduct of the parties and does not have to be expressly stated. The contract must also involve each of the parties giving or doing something that the law considers valuable, also known as “Consideration”. So for example, in a contract for the delivery of goods, the delivery of goods in exchange for payment is an act the law would consider valuable, therefore making the contract enforceable.
Social media has introduced new ways of negotiating and concluding contracts. Sometimes with a phone call, WhatsApp messaging, texting, emails, exchanges on twitter, or even Instagram, a contract may be concluded. In many cases, once the parties reach an understanding, they dispense with any formal documentation and proceed to execute their respective obligations. Many people who enter into a contract, without consciously regarding it as one, often dispense with reducing their agreement into writing because they consider it unnecessary. In some other cases, some people may feel they are in a weaker bargaining position and believe that to insist on a written contract may offend the other party whom they believe to be in a stronger bargaining position. This is especially the case for budding entrepreneurs and start-ups, who are anxious to establish professional relationships and patronages. Contrary to what some people may think, subtly insisting on a written contract is not offensive, instead it gives the impression of professionalism and is a good business practice.
An oral contract (also known as a Gentleman’s Agreement) can be as enforceable as a written contract, except in cases where the law expressly requires certain types of contract to be in writing; e.g. a contract for sale of land.
A contract may also be enforceable where it is partly written and partly oral. The problem with enforcing an oral contract is establishing or proving the terms of the contract. The position of the law is that he who asserts must prove. Proving the terms of an oral contract may therefore be a herculean task and where a party cannot prove the terms of the contract, the court will not go into speculation.
Here are a few tips to ensure that the terms of your contract are properly documented:
- Always ensure that you prepare a contract or request a written contract and have a lawyer review it for you before you sign. NEVER sign a contract without having a lawyer review it first. I know you might be worried about the cost of hiring a lawyer, if you run a very small business. The good news is that some lawyers understand that you are a start-up and even though they may not do it for free, they will give you a reasonably affordable fee..
- Where it is impossible to insist on a written contract, always prepare and send terms of reference. A term of reference is a document that primarily spells out or summarises the terms of the agreement between parties. It is essentially a documented version of oral negotiations and agreements reached by parties. It serves as a reference point for parties because it documents the services requested, the manner in which the requested services are to be executed, the cost of the services and all other fundamental terms. Its advantage lies in the fact that it could help prove the existence of a contract and the terms of the agreement. This is important because the court is bound by the terms of a written contract, but where the terms of a contract cannot be proven by the party claiming its existence, the court will not go into speculation.
- While negotiations over the phone may be convenient, as much as circumstances may permit, use platforms that accommodate written correspondence such as emails. In any case where it may be necessary to prove the terms of the agreement, this might prove useful.
Documenting your contract is desirable because it makes it easier for you to prove the terms of your agreement in the event of a dispute.