Contract Killing

We’ve all signed papers we wish we hadn’t. But when it happens in business and someone holds dominion over you, figuring out your options can be difficult. The reason to have a written contract, of course, is to prevent and solve problems. But what happens if you sign a contract with a client, partner, employer or employee and live to regret it? First, you must identify what makes a bad contract. It’s usually one of three thingsthe deal itself is bad, the contract was badly drafted, or both. If the deal you made turned out to be a poor one, the best drafted contract can’t turn it into a good one. But it should be able to help you shift the deal a little more in your favor. If the deal is sound, but the contracts poorly drafted, it won’t solve problems that might come up, but you may be able to live with it. But if the deal’s bad and the contracts poorly drafted, you’re up the creek and left to contemplate your lack of a paddle. Change is inevitable, and the best contracts anticipate it. While it’s impossible to foresee everything that might go wrong, there are several issues that come up so often that every contract should address them.

Money

While most agreements specify how much money one party is to pay the other, a common gray area is how and when. Expect problems if the contract doesn’t specify 1) when payments are to be made and what happens if they’re not, 2) what must be done before payments are made and 3) the timeframe between invoice and payment.

Ownership

Copyright ownership is the coin of the realm for designers. Agreements should be clear about when and if rights transfer to the client. Also, pay close attention to work-for-hire language. Much to their chagrin, many designers have discovered belatedly that they signed work-for-hire agreements.

Terms

The duration of the terms is often the difference between a good contract and a bad one. I’ve never had a client who regretted signing too short an agreement. But many rue the day they signed a long one. While it may seem appealing to sign a five-year contract for a monthly retainer for a specific type of work, five years is a long time in the design business. What appeared to be a great deal the first year can be strangling you by year three. Short-termno more than one yearagreements with the opportunity to renew are a much safer bet.

Termination

Every agreement should have a way out. The simpler the better: “This contract may be terminated with 30 days written notice by either party.” The sample contract on p. 29 was drafted by a designer. While the names have been changed to protect the guilty, all other items are exactly as drafted. Let’s look at it in terms of problems that typically come up in a bad contract. The contract spelled out the work to be done and how the firm was going to be paid, but it didn’t specify what would happen if the client rejected the work or refused to pay. More important, it didn’t include anything about copyright ownership. It didnt address how the agreement would end or specify a term after which the parties would have no obligation to each other. It contained an attorney’s fees provision, but also included an arbitration provision, which had legal implications the writer didn’t understand.

How to get out of a bad contract

If you find yourself in a contract like this, there are three ways to get out of itrenegotiate it, break it or litigate. To renegotiate a contract, the other side must be willing to talk. If the relationship is still amicable and there’s an avenue to work out a new agreement, take it. Meet with the client to explain your positionwhy you need the agreement amended and the terms youre seeking. Remember that you need the cooperation of the other side, so accusing them of bad behavior, even if it’s true, isnt helpful.

For example, in our sample contract, the client was thrilled with the designer’s initial work and both parties agreed to enter into a monthly retainer agreement. This would have been the ideal time to renegotiate the original agreement and add terms that were missing. The advantage of breaking the contract is you end the relationshipeither in writing or orally. You stop doing the work and you stop getting paid. The disadvantage is you may be legally liable for payments or services and the other party could sue you.

It’s always best to avoid litigation. It’s time-consuming, expensive and rarely satisfactory. But, unfortunately, sometimes it’s unavoidable. If youre considering walking away from a contract, consult an attorney to determine whether the benefit is worth the potential litigation costs. The best way to prevent the hassle of a bad contract is to not get into one. It’s often said that an attorney who represents himself has a fool for a client. I’d add the same goes for a designer who drafts his own contract.

The designer who wrote the sample contract also drafted others. Hes spent thousands of dollars on litigation. Investing a few hundred to have a lawyer draft template agreements would have saved him money, aggravation and time.

If you’re entering into agreements that could have long-term implications, know when to seek professional help. It doesn’t pay to be penny-wise and pound-foolish.

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