Documents: The key to winning in court

It is a badge of honour for some businesspeople that their word is their bond and they believe a handshake is sufficient to bind them to a contract. 

I am not criticizing these people.  They are pillars of integrity.  A handshake IS sufficient to make a contract.  If everyone were the same as these people and honoured their word, we would not have commercial lawsuits.  Some of them believe that they should not have to rely on documents, as their word should be sufficient.  Those people, while honest, are perhaps being a little naïve.

You see, unfortunately, not everyone is a pillar of integrity.  That means that some people’s words are worthless.  A handshake with them is merely pressing flesh with a louse.  That means that there will be broken promises and broken contracts.  There will be lawsuits.  A court will have to weigh the evidence of the witnesses.  In those situations, without documents, we are left with “he said, she said”. 

I’ll tell you something:  documents speak louder than words.  It is much better to have a contract that sets out your obligations.  All you then have to prove is whether the other side has fulfilled its obligations. 

(Of course, while documents that are not well drafted speak louder than words, they may be speaking gibberish.)

All of this may seem obvious to many of you.  However, it amazes me how many people have very important contracts that are not in writing at all or, sometimes worse, are put together in some homemade document that fails to address important issues.

I am not trying to create work for lawyers here.  We get a lot more work dealing with clients with deficient (or no) documents and the messes that they create than with clients who pay a little and get documents done right in the first place. 

Here’s an example:

If you sell to a customer on credit, do you have a credit agreement?  If you don’t, why not?  A credit agreement can be one page long.  It will set out the important terms like:  time to pay; interest on overdue accounts; personal liability of company owners (if it is incorporated); and the limit on the credit being granted.

I would be wary of using standard forms that you might buy from a store without having your lawyer look at them first.  I see a lot of standard forms that say, for example, that interest on overdue accounts is charged at 2% per month.  The federal Interest Act requires that Interest be shown at an annual rate, meaning that instead of getting 24% interest, the Act limits you to 5%.  It is much better to be able to claim the 24%, because, when you get it, that 24% interest can go a long way to paying your legal fees.

So, while it may make you feel honourable to do a handshake agreement, the risk is that you will have a much more difficult case to make if there is a problem.