Every business owner will, at one time or another in their career, sign a contract which starts off well, but turns into a disaster. Why does this happen?
The Devil, as always, is in the details.
Far too often, business owners sign contracts without giving the document enough thought. The most common reasons are:
Thinking a contract is unnecessary or a handshake should suffice.
A contract shouldn’t be necessary – if humans were perfect. Unfortunately, they aren’t, and experiences has shown that far too many people fail to uphold their end of the deal. A verbal agreement or “deal by handshake” simply isn’t good enough for any significant transactions. Even if the other party deals in good faith, it’s easy to forget exactly what the terms of a verbal agreement were. Get it in writing.
Contracts are specifically designed to give their makers leverage.
Assuming the contract is “standard” and cannot be negotiated.
There is no such thing as a standard contract. We’ve discovered clauses hidden in contracts that made reminded us of the deal in The Devil’s Advocate. Like a “non-reciprocal payment-performance” clause which somehow sought to secure payment for the service provider, whether or not it had actually rendered any services. Every contract is different – the devil’s in the details.
Assuming or that there shouldn’t be a problem.
If deals never went wrong, there would be no need for commercial attorneys. But, here we are. Unfortunately, people seek to gain more leverage than they should, promise to do work they can’t handle, or allow their service standards to slip. While many deals do go well, there’s an avalanche of those that don’t – and business owners lose money, or put up with substandard services, because of it.
The clauses in a contract are like software code – but instead of controlling machines, they control you.
Not knowing what to look for, or feeling powerless to change terms.
The clauses in a contract are like software, in a way – but they control people instead of machines. They’re designed to give their makers leverage. A contract can bind you to an unprofitable deal, force you to pay more money than a service deserves, or prevent you from exiting without a hefty penalty. You need to know which terms to look for, which terms are reasonable, and which terms are a plain attempt to force an unlawful or invalid requirement on you.
Real-life scenarios
The following are all real-life scenarios we have had to resolve due either to failing to get a contract in writing, or neglecting to really understand a contract:
An estate agent was unable to collect commission on a large transaction they engineered.
The young owner of a startup tech company was unable to recover shares he issued to his business partner.
A business owner paid far too much for digital marketing in a contract that was vague on actual deliverables - losing the client over R500,000.
A client bound itself to an unnecessary contract period of 72 months in a services agreement, trapping themselves into either accepting the service provider’s poor services for years, or High Court litigation to exit the contract.
The stakes can be higher than you think
Failing to thoroughly read and understand a contract can result in hundreds of thousands of rands spent in litigation, or even liquidation of a business. It’s worth investing a few hours with experienced commercial attorneys to review a proposed deal and negotiate more favourable terms aimed at securing leverage and growth for your business.
Maybery Inc. has drafted and reviewed every type of commercial contract, from a simple sales agreement to advanced portfolio transactions and due diligence.
Contact us to review your next contract or proposed transaction, and mitigate the risk of expensive litigation later.
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