By: Stacey L. Romberg, Attorney at Law
Sally recently left her 9-5 corporate job, and enthusiastically began a new event planning business. Sally’s friend, Larry, wanted to be one of her first clients. Larry wanted to hire Sally’s business to plan his wife Judy’s 50th birthday party. Sally found an event planning contract on the internet, and tweaked some of the language. The contract set forth that Judy’s birthday party would be held at the Gigantic Golf Club, with cocktails and dinner for 100 guests. Larry would pay Sally’s business $5,000 for event planning services, to be paid no later than ten days after the party concluded. Sally is thrilled to work with her friend, and to plan her first big event.
Larry and Sally signed the contract, and Sally then contacted Gigantic Golf Club to reserve the space. Gigantic Golf Club informed Sally that it required an advance deposit of $8,000.00 to lock in the reservation. Sally contacted Larry by email: “Hi Larry. I’ve reached out to Gigantic Golf Club, and they need an $8,000.00 deposit. Can you please send me a check for that amount, made out to Gigantic Golf Club? Then I can forward it over to them to secure the space. Thanks!” Larry responded: “Hi Sally. Our contract says I am supposed to pay for everything ten days after the party has concluded. I’d appreciate it if you could please pay the deposit, and then put it on my bill. Thanks.”
Sally is shocked when she receives Larry’s email. She reviewed the contract. The contract stated: “Larry is responsible for all costs related to the Event.” It also stated: “Upon conclusion of the Event, Sally will submit an invoice to Larry which will be due no later than ten days after the date of the Event.” The contract is silent as to whether Larry’s responsibility for the event’s costs meant that the costs will be paid up front by Larry, or whether Sally was required to initially incur the costs and then invoice Larry for those amounts. Sally doesn’t recall that they ever discussed this issue. Since Sally knew Larry personally, Sally wasn’t worried about getting paid and didn’t pay a lot of attention to the specifics of the contract.
Sally tentatively responded to Larry’s email: “Hi Larry. I’m so sorry for the confusion. Our contract doesn’t seem to address the issue of whether the costs will be paid up front. I’m afraid I cannot afford to incur an $8,000 fee, since I just started my business. Could you please pay it? Thank you for understanding!” Larry responded to this email within five minutes: “You have got to be kidding me! Don’t you remember that we talked about this? I told you that my son Charlie’s private school tuition is due shortly, and I’m tapped out. I won’t be able to make any payments until after the party. You better pay that deposit right away, because it’s too late at this point for me to fire you and hire a new event planner. If you don’t do right by me here, I’m going to go on Yelp and write the most scathing review possible!”
These types of situations, unfortunately, occur much more often than most business owners realize. A well written contract is the key to avoiding these types of “he said versus she said” disputes. Business owners need to routinely use thorough, well-drafted contracts that are prepared by an attorney. Here are seven tips for working effectively with your business attorney to develop a great contract:
#1: Explain any pertinent background information regarding how your industry works, and also set forth your goals for the agreement.
#2: Communicate your main concerns to your attorney about the proposed transaction (getting paid, receiving poor work quality, handling disputes, etc.).
#3: Provide a written outline to your attorney identifying the parties and principal terms of the deal.
#4: Think through how you’d like the contract negotiation process to proceed. Do you want to work through counsel exclusively? Or do the parties want to negotiate directly, and then go back to their attorneys with questions and revisions?
#5: Discuss the timing of the work.
#6: Understand the attorneys’ fees, and how you will be billed for the work performed.
#7: Be mindful of attorneys’ fees while negotiating contract terms. Some issues may be so minor that it’s not worth the attorneys’ fees to argue about it.
If there is a disagreement about the terms of a contract, rather than continuing an email or telephone “war” with the other party, here are some recommended first steps:
#1: Review the Contract Requirements Related to the Issue in Controversy: What does the contract say about the issue being disputed? Are you sure you are right and the other party is wrong?
#2: Review the Contract Requirements Related to Dispute Resolution: The contract may tell you how you have to proceed in resolving the dispute. Mediation? Arbitration? Litigation?
#3: Make an Initial Attempt to Calculate your Damages: Litigation is very expensive. In order to decide whether it’s worth it to pursue litigation, you need to know the monetary value of your loss.
#4: Call Your Attorney: Let your lawyer know your preliminary thoughts based on your initial legwork, and then discuss the situation and your options.
Stacey L. Romberg, Attorney at Law, focuses her practice on business law, estate planning and probate. For more information, please visit the firm’s website at www.staceyromberg.com.