From time to time, I advise a small business owner who is being pressured by someone to make an important agreement without a written instrument. The person applying the pressure will say something like, “In this town, we do business with a handshake.” The implication is that insisting on a written contract implies a lack of trust, and that such mistrust is at best discourteous and at worst dishonorable. Succumbing to such pressure can be disastrous to a business owner. Over time I have seen dozens of relationships ruined and millions of dollars lost to it.
Yes, it is in my interest to say this; much of my own business consists of negotiating contracts. On the other hand, I also represent clients in commercial litigation, and always earn a lot more fees litigating a dispute caused by the absence of a written instrument (or a poorly drafted one) than I would have earned drafting and negotiating an instrument on the front-end.
If you’re skeptical of this advice from a lawyer, I encourage you to consider it from a rock star. I have been reading Bruce Springsteen’s 2016 autobiography, Born to Run. In one of its later chapters, he tells a story about misunderstandings he had with some members of his band in the 1980s over his obligations to them, which resulted in protracted litigation. He laments, “I’d created a good deal of [this] state of affairs myself by not providing clear boundaries[.]”[1] He continues, “Everyone, without concrete, written clarification, will define the terms of your relationship in accordance with their own financial, emotional and psychological needs and desires, some realistic and some not.”[2]
Springsteen may overstate this. However, I agree that people have a natural inclination to interpret and recall statements and events in their own favor. Moreover, even during the moment when two people believe they have reached an agreement, they may have different understandings of the content of that agreement. Finally, people’s memories fade over time.
Reducing an agreement to writing serves at least two purposes. First, during the negotiation process, it forces the parties to review the same proposed written expression of their understating and propose corrections until all parties are literally “on the same page.” Second, it leaves a record of the parties’ agreement for later reference. There is an adage: “Memories fade; ink doesn’t.”
From Springsteen’s bad experience, he came to “realize the importance of clarifying [his], and [his] band members’, commitments in as reasonably indisputable a fashion as possible.”[3] He continues, “That meant contracts (previously anathema to me).”[4] Since his 1988 Tunnel of Love tour[5], Springsteen has insisted on written contracts with all band members. Springsteen’s next words are golden:
“After all this time, to some, I suppose, it suggested mistrust, but those contracts and their future counterparts protected our future together. They clarified beyond debate our past and present relationships with one another, and in clarity lie stability, longevity, respect, understanding, and confidence. Everyone knew where everyone else stood, what was given and what was asked. Once signed, those contracts left us free to just play.”[6]
Take it from The Boss. Written contracts aren’t about mistrust. They are about mutual respect.
[1] Bruce Springsteen, Born to Run (2016) p. 375.
[2] Id. (italics in original).
[3] Id.
[4] Id.
[5] This tour included the first of several Bruce Springsteen concerts I have been privileged to attend over the years, at the Met Center in Bloomington, Minnesota in May 1988.
[6] Id. (italics in original).