Episode 82: The Dangers of Self-drafting a Contract When You're Not a Lawyer

The Dangers of Self-drafting a Contract When You're Not a Lawyer

Episode 82 on the Business Bites Podcast

The Gist Of This Episode:  When we first start out our businesses, we want things done quickly and involving as little money as possible. So it’s not surprising that business owners would rather self-draft a contract than have an attorney do it for them.  Join Rachel as she discusses why this may be one area that you want to invest in instead of DIY-ing it. 

 

What you will learn:

  • What 3 things contracts must have to be considered valid
  • Why entering contracts as your business is important
  • Why words matter in a contract.  Legal language can sometimes differ from every day language. 
  • What ambiguities are and how they can work against you
  • and more!

Expand To Read Episode Transcripts

Hey you guys, welcome to episode 82 of The Business Bites podcast. I want to share with you a topic. So much so, that I love that I’m going to be singing. Okay I promise I won’t sing the episode, but I want you guys to listen. If you don’t listen to any other episodes. Well, I hope you listen to other episodes, but this is an important one. Talking about the dangers of self-drafting a contract when you’re not a lawyer. Now I recognize that this sounds a little self-interested when I am talking about this since I am a contracts lawyer who draws contracts. I am also a business that has contract template forms on rachelbrenke.com and all of the affiliated brand sites. But I’m going to tell you now, I am actually, truly bringing this information to you not just from the standpoint of being a lawyer, but from being an entrepreneur and being a fellow friend in this life who just wants you to succeed and wants you to avoid any legal pitfalls that may occur. And this is a huge one.

Because I get it, guys. I understand. When we are starting up our business or we’re tight on cash, or we just need something done really quickly, it’s easy for us as type-A or just control, full steam ahead passionate entrepreneurs who think hey, I’ll just DIY it. I’ll do it myself. The problem with this guys, is when you’re self-drafting your contracts, there is danger ahead. We see it all the time. Guys, entrepreneurs and business owners just like you. You’re reluctant to call a lawyer for advice. Or you’re reluctant to pay for a contract. Because after all, it’s just a written document. I can open up Microsoft Word and hammer out some words on a piece of paper. What am I paying a lawyer for?

The think is, like other parts of your business, there’s probably things that you should not have DIY-ed, that bit you in the butt in the end. But guys, this will actually really could kill your business. So let’s talk about the dangers of self-drafting a contract when you’re not a lawyer. But let’s be clear before we dig into that. The involvement of a lawyer is not strictly required for a contract to be enforceable. Okay? So it doesn’t mean you open that just because you opened up Microsoft Word and you type out, it is automatically rendered unenforceable. That’s not how it works. The thing is, the contractual agreement is either enforceable or not on its face.

What this means is that a court will look at the contract to see if it’s valid and if it’s legally enforceable. This is about what is in it. Not just how it’s written necessarily. Contracts have been written on napkins, or scratched into wills, and some have even been written into the wall. Yes, yes, yes. There are some cases about it being put onto drywall and drywall coming into court. So guys, it’s not about that. It’s not about being a formalized Microsoft Word document or PDF. It is the what is in it, the contents. Enforceability is a really low bar. But we want to make sure that a contract isn’t unfavorable to you in some way that you’re not aware of, and we definitely don’t want it to be rendered unenforceable because then what was the point of having a contract at all?

My question to you is, are you willing to risk your business, your assets, including your house or any potential earning income you have, on your ability to draft a contract, or maybe a random contract that you found online?

So first of all, it may be not be a valid contract. If you are writing it yourself, it may not be valid. In its most essential form, a contract is an agreement between two or more parties. So it’s either you and your customer. Or you and your client. Or you may have more than two people in the situation with you. Contracts must have offer, acceptance and consideration to be valid. This is one area that many contracts falter on. People identify something as a contract, but it is not fulfilled because it does not have an element of consideration.

For example. Photographer A will provide a one-hour photographic portrait session for client B on a certain date, at a certain location, at a certain time. Okay? Then client B will pay photographer A a certain amount of money for the session, which will include X amount of photographs or products. Now, that is consideration. It is offering. Photographer A is offering to provide the services, and photographer B is accepting and also offering to pay photographer for the X amount of dollars and photographer A is accepting to receive that amount of money. The exchange of products and services for money is consideration.

Be clear. If there is not a concise and clear statement of what is being agreed to, then a contract may not be valid. So. I’m not giving you guys this as a way to compare to your own legal documents. I’m giving you some information so you can understand why drafting your own may not be the best, and that is because you may not even have any idea what consideration was before coming into this podcast. If you did, kudos to you.

You also might not be contracting with who you think you are contracting with. Sometimes self-drafted contracts don’t make it clear that the entity, a person or a company, is entering into the contract. For example, I’ve seen many of you, and you can even do this with a template that you download from a site online. Many of you will be an LLC, but you will write your contracts with you as the person. You will contract yourself individually and not your LLC or your corporation. Guys, then the requirement to perform is on you personally. There is none of that separation of liability between you personally and the business. Which we talk about in other episodes. I will link the related episodes at rachelbrenke.com/epi82. Which is the show that’s for this episode. So, there is a legal difference between an individual or a company. You want to make sure that the contract is drafted. So that it is connected to the proper person. Or entity.

Also, words don’t mean what you think they mean. Think of legal language as a dialect of English. Words often have meaning, right? And they have meanings that are different from your general understanding. And this is because courts have decided they have a very specific meaning. This is probably the most important out of this entire list of why you cannot just sit down as a lawyer, no matter how learned you are and how much you’ve researched, should not be drafting your own contracts at least without having a review. Now let me put that little disclaimer here. I do think it’s valuable for you guys to sit down and write out checklists and things that you want included in a contract, but always have it reviewed by a lawyer after. And why? Because like I just said, words don’t mean what you think they mean. They might have a different meaning and it could work against you or be rendered unenforceable or invalid.

Also a court needs to be able to understand what is being agreed to. The whole point of a contract, well, one of the points. If you guys have heard my other episodes, you know that I see contracts as customer expectation setting tools, obviously it’s creating a legal relationship. But it’s also going to be a protection tool for you. And that’s because contracts should make clear the rights and responsibilities of all the parties involved. If there are clauses, a lawyer word for sections or parts of the contract, if there are clauses that are unclear or ambiguous, then there might be a problem. For example, two of the parties may disagree about the meaning of a part of a contract. And it’s not obvious to a quote-unquote reasonable person, then a court can generally apply established rules of contract interpretation, which could be completely opposite of what you intended it to be, and it could hurt you.

So, if you are self-drafting contracts, you should know that one of the established rules the court will apply, that any ambiguities in the contract will be interpreted against the interest of the party who drafted the contract. Say what? Mind blown. Not only can it be construed against you because you guys don’t agree about the meaning of a contract, the court could find for it to work against you. Not by operation, but also understand that any time you have a contract that you’ve drafted, a court may apply that any ambiguities in the contract will be interpreted against the interest of the party who drafted the contract. This is because it is the responsibility of the party or person who drafted the contract to avoid ambiguity.

And how do you do that? By someone who is learned and licensed in avoiding ambiguities. What this means for you as a non-lawyer is that when drafting a contract, the court will not care that you’re a non-lawyer. They will care that you drafted the contract, and it will work against you.

One little side note here. Take this in the context of taxes. I am a smart enough individual, most of the time. Some of the time, right? I know enough about taxes to be dangerous and I can do my own taxes, but I don’t. Why? Well, A, I don’t have the time and energy and resources to sit down and learn the current tax code because that’s not in purview of what I do in my business. You guys aren’t doing legal work in your business or taxes. So, I’m going to go to someone that is under continuing education and licensure and responsibility to do that. I also don’t have time, but also it’s almost like an insurance policy. Let’s say my taxes get skewered. They’re wrong. And I’m the one that filed them. I have no recourse but against myself. Who’s paying all the fees and the fines? And all of the clean-up? Me.

But if I hire a professional to do something. And let’s say we hire someone who ends up writing an ambiguous contract. Because it has happened. There’s no such thing as 100% clear and concise iron-clad contracts out there. I’m going to say that again. Stop using the term iron-clad contract. There’s no such thing. A lawyer can draft as much as possible for as many situations as they’re attempting to contemplate, but life happens. Not in any two circumstances are the same. There may arise ambiguities. But guess what? If it’s not you that drafted it, you’ll have recourse against an attorney for any ambiguities or any damage that it may have caused you. But the thing is, you’re probably less likely to have ambiguities because they are a licensed professional who understands how to make it clear and concise. Especially if they work in that industry.

All right. Moving on to other reasons why we should not self-draft our contracts. Why we should always hire a licensed attorney. Because what works in one location doesn’t always work in another. One of the biggest mistakes made by non-lawyers who attempt to draft their own contracts, is they fail to understand the important role that jurisdiction, that is location, plays in the interpretation of the contracts. This is one of the most common issues with template contracts you buy online. Yes, I am one who sells contract templates, and I’m sitting here saying it. This is one of the most common issues. These online template contracts that you go and get for free, which you should never do because you don’t know about the enforceability and quality of it. But even if you do buy a template contract from someone like myself, you have to understand that you’re going to have to still get it to comply with the laws of your state, or the type of agreement that it is.

I have that CYA on my website. That is to cover your CYA, and that’s to cover my CYA. I don’t want to use the word, because I don’t want to have to put the explicit rating on iTunes for this. But you guys know what I mean, right? CYA. Even if you get a templated contract, still always take it to a local attorney. Have it fine-tuned. You will save money in the end. I have case studies on it. I could stick it into the show notes for you. But we always recommend that template contracts are reviewed by a local attorney who understands.

Also, consider the fact that you may think you’re agreeing to X, when you’re actually agreeing to Y. We talked about this a little bit already. But if you spent any time around lawyers, you’ll notice that we can be pretty pessimistic about all the things that can go wrong. That’s what you all pay us for. This is good for you, because if we’re seeing potential problems that can arise in your specific situation, and with your specific contract, can make a massive difference if any of those things end up happening.

One of the common issues that we see with self-drafted contracts, is that people think they’re agreeing to one thing, when in fact they’re agreeing to something else. For example, you might not realize that the contract heavily favors one party, or only allows one party to cancel the contract. Or other similar type of clause. So, because you don’t have the experience to draft it properly, you’re agreeing to X when you actually thought you were agreeing to Y.

Also, you may need more than one type of contract or legal document for your business. One size does not fit all. You might not be aware of the areas of your business that need protection. For example, employment agreements, non-disclosure agreements, intellectual property transfers and assignments all might be necessary to enable you to own what you think you already own, or to make sure you don’t inadvertently sign away your intellectual property rights. Further, you might not contemplate how to handle a clause or agreement that is held by the court to be illegal or unenforceable. Pretty common sense, because you’re not a lawyer. If you’re self-drafting a contract, it is unlikely that you will have included clauses that make it clear the intent of those who agree to the contract, if one or more clauses are held by the court to be illegal or unenforceable.

So generally speaking, you and the other party want the contract as a whole to still stand, even if it cannot be entirely enforced. This is where some of that legal miscellany comes in. This specifically refers to severability clause. But there’s other legal miscellany that you need to have in there. That, unless you’re a lawyer, you’re probably not going to understand A, what to put in or really how to write it.

Like we’ve talked about, a self-drafted contract may not foresee all the issues and complications that may arise. A contract needs to clearly articulate the transaction that you’re engaging in. But that’s not all a well-drafted contract will do. It will also clearly explain what the parties agree will happen. If one party doesn’t follow through on their responsibilities under the contract. It will limit your liability in circumstances that are beyond your control, and will make it clear that the contract is a whole agreement.

So in the very least y’all, make sure that your contract can be used over and over with confidence. Make sure you understand what’s in it, and make sure that a licensed attorney, specifically one that works with contracts, please just don’t go to Uncle Joe because he has worked doing medical malpractice or insurance for five hundred years. You want to make sure that they are a business contracts attorney if you are in a business. And even better if you can find someone in your industry so that you can have a better relationship with them. You can have them for the long-term and more well-rounded contract. Please always invest in having an attorney review your attempts at self-drafted contracts and/or contract templates, so you can avoid the pitfalls. I’ve seen it time and time again. Guys, I’m not just saying this as a lawyer. I’m saying this as an entrepreneur who wants to keep my money. But I as I see it, time and time again, that it costs two to three times more to solve problems that could have been prevented had you just paid an attorney to draft your contract correctly the first time around.

DIY-ing, or writing your self-drafted contracts can lead to rights, to valuable assets, exposure to financial risk and ultimately, it ends up in some very expensive lawsuits, or forfeiture of any potential lawsuits or claims that you could have had to enforce what you thought were your rights.

So please, guys, I get it. It’s easy to want to DIY. Just understand the dangers of whipping up your own self-drafted contract, or cobbling one together from the internet. Please always have it reviewed by a local attorney. Reach out to me. Jump into the Business Bites podcast group. I’m more than happy to help try to find you a local business contracts lawyer. And again if you have any questions at all, reach out to me. Show notes, related episodes and other resources such as my contract template forms can be found at rachelbrenke.com/epi82.

About the author

Hi, I’m Rachel Brenke

Rachel Brenke

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