When Do You Need A Contract?
Contracts are a part of daily life. Whenever you hire someone to perform services, there usually is a contract between the two parties. Normally, when you decide to hire a company to perform services, a contract is already written and all you have to do is sign it. In those types of situations, it is not very cost effective to hire an attorney to review the contract. However, in situations involving a business deal or lending a large amount of money, it is crucial to have a written contract.
1.LENDING MONEY IS RISKY
We’ve all heard the stories – lending money to a friend or family member often leads to trouble. When asked, “why wasn’t there a written contract?” the answer is always along the lines of “oh, I trusted him.” It is understandable to want to help a family member or friend, however, if the expectation is to get paid back, it’s best for everyone involved to have a written contract detailing the terms.
While a simple written agreement can be sufficient for small amounts, if the amount of money lent is substantial, it is in the best interest of the parties to have a contract drafted by an attorney. One crucial element of a loan agreement is whether or not the loan is a secured loan (meaning there is collateral). Drafting a loan agreement with collateral has important elements to “perfect” the collateral in order to ensure that the lender has the right to collect the collateral in the event of default,.
2.BUSINESS DEALS NEED CONTRACTS
While you might get away with just a simple contract for loan agreements, it is definitely important to have an attorney draft a contract for anything involving a business deal. Contracts in business are for maintaining the expectations of the parties. They detail the responsibilities of the parties as well as situations where a party is unable to perform his or her responsibility.
It is important to have a written contract that details very clearly all of the parties’ expectations and responsibilities so as to prevent any type of misunderstandings. Without a written contract, the risk for misunderstandings increases.
3.A CONTRACT IS IMPORTANT FOR LITIGATION
More important than putting basic terms in a contract is a written contract that also addresses what happens if a party “breaches” the contract. Things happen in life and sometimes a party to the contract cannot perform on the contract. If this happens, and if the contract specifies what happens during default, it will save a lot of time and money in handling this type of situation.
However, if the contract does not specifically address what happens if and when a party defaults, then the only other choice that a party has to fixing the situation is to sue the other party in court, which costs a lot of money. Having a well-drafted contract that details how parties can resolve problems that arise out of the contract can save all parties a lot of time and money.