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What Else Should I Know About Contracts?

In our last column, we discussed the idea that you should think of a written contract as a written memory of your business agreement with another party. With this in mind, make sure that your contract includes in writing every term, agreement, and memory of the deal that is important to you and your interests. Not only will this preserve the entire memory of your agreement, it will also help protect your rights should a dispute reach a court, arbitrator or mediator.

terms the parties had agreed upon. This means that, in the event of a dispute, a court or other body will, except in rare circumstances, refuse to hear evidence of oral negotiations, agreements or amendments (known as "parol evidence") not contained in the written contract. If the written agreement contains all of the elements of a valid contract (discussed in an earlier column), then the court will enforce that contract, ignoring all "parol evidence." Therefore, your written contracts should contain all terms of the deal. Should you wish to change your written contract in any way, and the other party agrees, then you must place this "Amendment to Contract" in writing also. Otherwise, the agreed-upon change will almost always have no impact in a court dispute. When drafting an Amendment, make sure you specifically identify the contract you are amending by its date, names of the parties, and subject matter.

What if the other party does not want to enter into a written contract? How would you prove you had an agreement? One option is to write a detailed letter to the other party setting forth your understanding of the deal in its entirety. For example: "Yesterday, January 15, 2006, you and I agreed that I would create, and you would purchase from me, a bronze sculpture of Donald Rumsfeld, to be placed in the front yard of your residence at …. The terms of our agreement, as I understand them, are as follows: (1) …(2)…", etc. Put every term of the agreement in the letter (price, delivery date, materials, size, time of payment, who is responsible for insurance or transportation costs, copyright ownership, exclusivity, duplicates, whatever the terms may be). Then state: "If you believe any of the terms of our agreement differ from the above, respond to me in writing within (five) business days of the date of this letter, setting forth any disagreements you may have." If the other party does not respond, you have created a strong presumption of a binding agreement on the terms you have set down.

Keep a copy of your letter and any other correspondence (including e-mails) that you may have regarding your negotiations and agreements. When you send the letter, obtain a proof of mailing from the Post Office. At a minimum, obtain a "Certificate of Mailing" stamped by the postal employee at the counter (only .60 cents prior to the recent rate increase), or, more formally, send the letter certified, return receipt requested.