Contracts, either written or verbal, are one of the key building blocks of our commerce system, but do you really know what your standard customer contract means? A review of some contract situations could save you much time and aggravation.

What’s actually in your standard form agreement?
Mr. Cellar, the President of Cellar, Inc. has been working for months on landing Ms. Byer as a new client. Ms. Byer, owner of Byer Co., finally agrees to give Mr. Cellar an opportunity to impress her with a small order. It’s now time to ink the deal. Ms. Byer reads the contract and starts asking questions about the “fine print.”

“What do you mean by ‘force majeure?’ I don’t understand this indemnity paragraph,” she says. Mr. Cellar reads the provisions and stares blankly at the page. He can offer no explanation about those provisions; no one has ever asked him about it before. Either he copied someone else’s form or it’s been a long time since his lawyer explained to him what everything meant. But then he starts to worry; what will Ms. Byer think if he doesn’t know what his own contract means?

If a person needs a law degree to understand your standard form contract, it probably fails to achieve one of its essential goals–clarity. A contract is a form of communication, and just like other forms of communication, the writer must remember the audience. The audience of a commercial contract includes people who are (i) signing the agreement, (ii) employees who may not have been involved in the negotiation of the agreement, but will be required to perform it, and (iii) hopefully never, but unfortunately sometimes, a judge or jury. (Potential investors, partners and buyers will also want to review contracts, as well as many other agreements; when drafting such documents, you should also keep these audiences in mind.) Moreover, well-defined terms of art and precise legal language may in fact be necessary and appropriate in certain complex transactions, or in some specific areas of the law.

Do I really need a standard form agreement with my clients or customers?

Not necessarily. If Mr. Cellar has a hardware store and his services are to in-store customers, he’s not going to give his customers a two-page agreement to sign. Nor does the law require every contractual relationship to be in writing to be valid and enforceable. In Florida, there’s no writing requirement for service agreements or for leases less than one year in duration, and courts will enforce oral agreements for the sale of goods with a value of less than $500.

Courts will even imply that the parties intended to enter into a contract if the facts show one party received a benefit and didn’t object. The court will then decide what a “reasonable” fee is. The parties will each spend significant efforts, and associated costs, to prove their amount is reasonable. The law fills in many of the blanks when there’s no agreement in writing. The lesson here? A contract can save time and money for both parties should a legal dispute arise.

Back to the hardware store example: while an agreement with casual customers is unnecessary, the store owner would be well-advised to ensure that customers seeking specialized work, or longer term services, agree in writing to pay for the work or services. Such an agreement should also, among other things, (i) prohibit the customer from canceling the agreement after the work has been completed, (ii) relieve the store owner of his obligation to provide the services if his facilities are destroyed by a hurricane, and (iii) provide that the customer must defend the store owner in a lawsuit if the customer misuses the equipment and someone is injured as a result. While the owner is very likely to win a suit against his customer if they refuse to pay, his trial lawyer will achieve the best result more expeditiously (and hence at a lower cost) if the suit is based on a written contract.

Bottom line: In cases where there’s no written agreement at all, courts are required to fill in value and performance-related issues. Even if there’s a contract, if certain contingencies aren’t addressed, the court will fill in those provisions. Mr. Cellar needs to ask himself if he’d rather define his relationship with his customers or, if there’s a dispute, allow a court to do it for him.

Gwen Griggs owns Gwen Hutcheson
Griggs, P.A. She can be reached at
904-396-7333 or ghgriggs@griggspa.com.