Legal Ease Articles

Bad Contracts/Bad Deals And How To Get Out Of Them

By Jean S. Perwin

In the poem "The Hand That Signed the Paper" Dylan Thomas said, "Great is the hand that holds dominion over/Man by a scribbled name. All of our hands have signed papers we wish we didn't. But when it happens in business and someone holds dominion over you, figuring out your options can be difficult indeed. If every business relationship went smoothly, no one would ever need to sign or enforce a contract. One of the reasons to have a written contract is to prevent problems and to solve them. What happens if you sign a contract with a client or partner or employer or employee and you live to regret it? What do you do?

First, you have to identify what makes a contract a bad one. A bad contract usually comes down to one of two things--the deal itself is bad or the contract was badly drafted, or both. If the deal you made turned out to be a bad one, the best drafted contract cannot turn it into a silk purse. But it should be able to help you change it. If the deal is sound, but the contract is poorly drafted, it won't be able to help you solve problems that may come up. But if the deal is bad and the contract poorly drafted, you're down that river and contemplating your lack of a paddle.

If nothing is permanent but change a good contract anticipates change. And while it's impossible to anticipate every thing that could possibly go wrong, there are several issues that come up often enough so that every "good" contract should deal with them.

Money

Money is always a problematic issue in any business relationship. While most agreements specify how much money one party is supposed to be paid by the other, a common problem is how and when. If the contract doesn't say specifically when payments are supposed to be made and what happens if they are not or what has to be done before payments are made or how long after invoices are payments supposed to be made, there will be problems.

Ownership

In the graphic design business, any agreement which does not spell out who owns what when will be problematic. Copyright ownership is the coin of the realm for designers. Agreements should be very clear about when and if rights transfer to the client. Work for hire

Term

How long a contract will last can often be the difference between a good contract and a bad one. I have never had a client who regretted signing too short an agreement. But many rue the day they signed long term agreements. While it can appear very appealing to sign a 5 year contract with a client for a monthly retainer, for example, for a specific type of work, 5 years is a very long time in the design (or any) business. What looked like a great deal in year one can be strangling you by year three. Short term--no more than one year -agreements with the opportunity to renew are much safer.

Termination

Every agreement should have a way out.

Let's look at our bad contract. It spelled out the work that was to be done and how the firm was going to get paid. But not what happened if the firm did not get paid or if the client rejected the work. It did not have anything in it about ownership of the copyright in the work that was created. It did not address how the agreement would end or specify a term after which the parties would have no obligation to each other.

It contained an attorneys fees provision, but also put in an arbitration provision which the writer did not understand the implications of.

How To Get Out Of A Bad Contract

There are essentially two ways to get out of a contract--renegotiate it or break it. There are advantages and disadvantages to both.

To renegotiate a contract, you need the other side to be willing to negotiate. If the relationship is still amicable and there's an avenue to work out a new agreement, take it. Sit down. Explain your position and why you need the agreement amended and what kind of terms you are looking for. Remember that you need the cooperation of the other side so accusing them of bad behavior, even if it's true, is not helpful. For example, in our example bad contract, after this initial work had been done for this client, the client was thrilled with the work and agreed to enter into a monthly retainer agreement. This would have been the perfect time to renegotiate some of the terms of the original agreement.

The advantage of breaking the contract is that you end the relationship--either in writing or orally. The disadvantage is that you may be legally liable for payments or for providing services for which the other side could sue you. From where I sit, litigation is always something to be avoided if possible. It's time consuming, expensive and rarely satisfactory. But unfortunately, sometimes it's unavoidable. If you are considering walking away from a contract, get legal advice to determine whether the cost of walking is worth the potential cost of litigation. Then at least if you decide to take the leap, you're not diving into an empty pool.

The best way to avoid bad contracts is to not get into them in the first place. It is often said that an attorney who represents himself has a fool for a client. I would add that a designer who drafts his or her own contracts also has a fool for a client. A designer drafted the contract that serves as our example of a bad contract. And this wasn't the only one. To date, he has spent thousands of dollars on litigation with no end in sight rather than spend a few hundred to have template agreements drafted for him that would have made the litigation unnecessary. Know when to seek professional help. It simply doesn't pay to be pennywise and pound foolish.