Why do I need a contract?

Published: 7 December 2018

Many of our clients, justifiably, ask the question “Why do I need a contract?”. Most of the time this question is asked in situations where the business relationship has just started, and things seem to be going really well. I have often heard the phrase “There is no need to get lawyers involved – they just complicate things”. This can be true, however, there is also a lot of merit in getting good lawyers in to draft your contracts.

There are three major reasons why it is good to get a contract drafted by a professional. The first is that you don’t know your unknowns, the second is that contracts help with minor disputes and the third and final reason is that contracts help in situations of major disputes.

You don’t know your unknowns

I used to service my own car – it wasn’t a difficult job as I knew where to get the parts and my car is relatively simple to service. I stopped servicing my car myself when I started running into trouble with my car breaking down and I realised that I needed a professional to look out for things that I couldn’t see or didn’t know to look for. The same is true for contracts; you might feel comfortable with a handshake, conversation or email to seal the deal, but you don’t know what you are missing from a legal perspective.

There may be certain pieces of legislation you need to comply with like the Consumer Protection Act, 2008, the National Credit Act, 2005 or the Companies Act, 2008. You may not realise that you are unintentionally changing the terms of your deal by sending an email out (yes, emails can change your agreements). You might want to go to arbitration or mediation instead of going to court if you land up in a dispute. These are just a few examples of the minefield that can be out there when drafting contracts.

Minor disputes

The beauty of engaging a lawyer to draft your agreement is that you often thresh out issues that you wouldn’t necessarily have considered. This then gives you a solid base to work from when you run into a minor dispute. A minor dispute would be something that is not a deal-breaker but is often a misunderstanding as to who should be doing what. If you have not worked through this and written it down, then you end up engaging in a game of “he said / she said” which can turn into a major dispute. If we are all honest with ourselves, our memories are not perfect, so writing something down that is well thought out helps everyone have clear boundaries and often puts an end to those minor disputes quickly.

Major disputes

Major disputes come in where one person has done something that cuts to the core of the relationship, resulting in the relationship ending. This is probably where a clear and well drafted contract is most important. You might feel like you will never land up in a place like this, and the probability is that you won’t, but a contract is often drafted (like an insurance policy is taken out) for the “just in case” situations.

Where a contract is clear as to who should be doing what and you land up in a major dispute, this can result in the matter being settled before court proceedings are launched, as everyone knows where they stand. If you do land up in court proceedings, it could assist you in getting a better settlement as the vast majority of commercial matters never make it to a court hearing but are settled before they arrive there. If your opponent feels like they have some wiggle room, they may take their chances at a hearing rather than settling with you resulting in long drawn out (and expensive) court proceedings.

Overall, contracts are very useful tools in business and they can be of great assistance. It is important to have them drafted by a professional, although it may not seem like it at the time, and it is more important that they are clear and deal with all the important aspects of your relationship. This could save you and your business a lot of trouble down the line.

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