LAW! People are usually afraid or unsure what may result from the consequences of their legal actions. We are unsure of the consequences of law perhaps because we do not understand or know the law, as in the case of medicine. We are often afraid of the results of a medical exam or blood test because we do not know what it may mean or what will happen after we receive the results. Similarly, we may not always know the legal effects of breach of contract or adultery in a marriage or what creditors may do in a liquidation of one’s company. It can create a sense of uneasiness and even fear when those consequences are on the cusp of realisation.

Perhaps that is where the problem lays! We are often more concerned with the law at the backend of circumstance than at the beginning of a venture. It is not that we are uninterested of the consequences or (necessarily) ignorant of those consequences but more that we are excited or a want of the circumstance to succeed that we do not give full thought to those consequences.

At a business event that I attended, someone said “Agreements is the new oil”. I found myself in complete agreement with this statement. I was reminded of what a contract ought to be. It is at its basic structure, a meeting of the minds. A circumstance that one party comes to the table and the other concurs with the terms and conditions. Another key point is that a party does not blindly agree to the terms and conditions that are before him or her. (S)he sits down considers the terms and conditions and ought to change or negotiate those terms or conditions that are unfavourable. Or where one is not in a position to always consider those terms and conditions, we do not consult an attorney to receive an opinion comprehensive of the terms and conditions and its meaning. This does not always seem to be the case, instead we sign on the dotted line in haste for the benefit with little consideration for the consequence.

Indeed, the realities of a small business losing a contract because of some terms or conditions that are unfavourable (often) leads to that small business agreeing to the contract for the sake of the benefit. It is true that as small businesses start up, the need for contracts is of utmost importance and perhaps small businesses are hesitant to negotiate or question the contract for fear that it may lose that contract. A fear that is well understood in this article and at this firm.

Without giving business advice, perhaps entrepreneurs should be willing to take the risk of negotiating the contract with the large corporation rather than accepting the contract it receives. Sure it is a risk on the face of it. Consider the following propositions: one agrees to a contract that may lead to some benefit at the expense of (many) terms and conditions that have an unfavourable element to the small business. In the second proposition, a small business that has negotiated a contract with lesser benefit than the first proposition but with terms and conditions that are favourable to it.

It may seem on first glance that the first proposition is the better choice – the benefit is there. Except it is not – it is short-sighted. A contract that gives a smaller business a larger benefit but more obtrusive terms and conditions creates little security for the smaller business. Often those terms and conditions dictate that there are harsh penalty clauses for breach or dictate when the other party pays the smaller business or that the contract gives the larger business the right to appoint other service providers for the same service that the small business provides.

A contract that is better negotiated could result in the small company having the certainty that for the next two years it is the exclusive service provider or that the larger corporation may suffer penalties for failing to honour their obligations. Indeed, these are propositions and it is true that businesses are often placed in difficult positions to continue and thus may take whatever comes their way. However, an approach that places both parties satisfied with the contract, a meeting of the minds on all terms and conditions is a better approach to contracts in business than accepting a contract without debate. 

Finally, the cost of instructing attorneys to consider the contract and provide proper advice on a contract about its terms and conditions has a greater benefit and is far less costly (in most instances) than the costs of having attorneys to defend a contract that was not well considered prior to signing on the dotted line.

Written and prepared by Kirith P. Haria
BOUWER KOBELI MORABE

Please do not hesitate to contact us on +27 11 788-0083 should you have any further enquiries or email enquiries@bkm.co.za.