Last updated on May 2nd, 2019
Andrew: Go live. All right. It is Wednesday. It’s 11 o’clock again. It’s Law Talk time. We have a really interesting, super interesting topic today that I know I’ve personally been reading about, so I’m super pumped for this.
Andrew: We’re talking about contracts, and more specifically, contracts as they exist in everyday life.
Andrew: Because when people talk about contracts, it’s one of those things where it’s sort of mystified. It’s something that lawyers do. Normal people don’t really have any interaction with it, when it reality, people deal with contracts like every day.
Jacob: Every single day, yeah.
Andrew: Like all the time, and they don’t seem to really realize it. That’s sort of what we’re going to be getting into today, is how people intersect with contracts … or how people deal with contracts in their everyday life from going to your job, buying things at the grocery store. There’s a whole wide range of things that people do with contracts.
Jacob: Right. Yeah, and I think the interesting thing about contracts is … When we talked about business associations several weeks ago, we mentioned that businesses, they just happen out of thin air, and then the law applies definitions to them.
Jacob: Well, it’s the same with contracts. Whether or not you intend to make a contract or not, you may have had an oral or verbal contract if you’ve done business before with each other and money has traded hands, you know that invoice is evidence of some kind of contract. That receipt is evidence of some kind of contract. When you park, the information on the back of the little parking ticket that says, “We’re not responsible if someone comes and keys your car,” that’s part of a contract, right? Contracts influence virtually every transaction, every interaction that you have with somebody else or with a business every day.
Andrew: Yeah, because essentially there’s a list of requirements that make a contract, and as long as those requirements are met, anything’s really a contract. The exchange of services or goods, anything really.
Andrew: You want to just sort of start by just sort of broadly defining what a contract really is? Because it’s sort of slippery to understand, so …
Jacob: Yeah, yeah. So a contract is an agreement, like you mentioned, for services or products, typically for money or some kind of monetary transaction. Of course, there are rules that generally uniformly apply to how transactions go and how contracts govern, but formal contracts are used to redefine the traditional rules or to clarify what the rules are in this specific circumstance.
Jacob: I would look at businesses and their operating agreements. Those aren’t technically contacts. They’re operating agreements, but the language of them is contractual. Like, “This is the rules we’re going to play by in the event that such and such occurs.”
Jacob: And it’s the same way with a contract, like upon trading money and products, “This is what’s going to happen.” Yeah, contracts generally just kind of govern that set of our lives.
Andrew: Yeah. So what you’re sort of saying is it’s a list of rules that everyone’s … It’s like you’re playing a board game, for example. There are certain rules that people are like, “I will play by these rules,” and by making a contract, whether written, oral, or anything, you’re basically agreeing to play by the rules.
Jacob: You’re agreeing to the rules that you’re going to play by, yeah.
Andrew: Yeah. Anyway, for example, when you’re signing a lease, if you’re living somewhere, I feel like that’s a really simple example.
Jacob: A lease agreement, yeah. That’s a good example. It’s one that lots of people have experience with.
Andrew: Yeah. You’re essentially like, “I will give you money to live at this place.” So you’re giving up money in this example to get a, I don’t know, service? I don’t know what you would call, “I get to live here.”
Jacob: I mean, I’d say it’s a service.
Andrew: Then you look at the actual contract, or the actual lease agreement. That is a contract. It’s like, “We will play by these rules. You will fix my sink if it breaks. I will not have my cat destroy the apartment or something.” It’s a list of rules that everyone follows.
Jacob: Yeah, and I think that lease agreements are an interesting example because what’s interesting is that there are sets of laws or rules that apply to the different agreements. For example, for lease agreements, there’s the Landlord-Tenant Act of Virginia that applies to those in Virginia. I’m sure many states have laws that apply to their lease agreements.
Jacob: A lot of different transactions are going to have default rules that apply to them that come out of a statute like a landlord-tenant act, or there will be rules that apply to them just out of the common loss of courts decide, “This is how this works.” In leases, for example, there are some things that a landlord must do, and some rights that they cannot contract away. Some industries are like that, whereas in other contracts, you can change all of the rules.
Jacob: That’s kind of where if things start to feel a little tricky or you feel uncomfortable with a certain agreement, that’s the point at which you can say, “Well, maybe I should talk this over with a lawyer.” Most lease agreements tend to be standard. They’re printed off by a couple of providers of those agreements, and they tend to agree with the laws and rules of where you are.
Andrew: Okay. I guess let’s sort of reign it back a little bit and let’s talk again about like … I know we mentioned the requirements for a contract earlier. That seems like a good place to really start digging into this topic because, so for example, there are certain basic elements that all contracts, whether written or oral have to follow.
Jacob: Right, right, right, right.
Andrew: For example, both people have to agree to the contract. You can’t put someone to a contract that they don’t want to be in. You want to sort of talk to those super base level “How to make a contract” sort of requirements.
Jacob: Yeah. I mean, I think, again, contracts are everywhere. When I draft a contract, I do try to go back to the basics. I’m a big fan of taking each part. I actually have a book from law school that I used in a contract drafting course. What you’re talking about there, one of the things you mentioned that I think was more important in the past was this idea of consideration that there had to be money that changed hands for a contract to be effective, and that’s true.
Jacob: It reminds me of that scene from Breaking Bad when the lawyer is talking to them and wants to establish attorney-client confidentiality. “Put a dollar in my pocket,” you know? I don’t know if you’ve ever seen that.
Andrew: I mean, it’s a common example, though. You make a contract for some random thing, but there has to be an exchange of goods, essentially, so people hand over a dollar.
Jacob: Right, right, right. Consideration is part of it, but consideration, generally, is just the money that’s transacted. I’ll just kind of base what I’m going to talk about here off of this textbook that I, again, when I draft a contract completely from scratch, I’ll come to this and make sure I include everything that’s typically important.
Jacob: As technical names, there’s a preamble, like, “This is such and such agreement date at this date. It’s between these parties.” Every contract is going to say, “This is what we’re talking about, and these are the people we’re talking about.”
Andrew: And when.
Jacob: And when. Yeah, and sometimes a contract will refer to an effective date versus the date that it’s signed or versus the date that it’s written or drafted.
Jacob: Yeah, it tells you who, what, when. That’s pretty easy. The rest is the how and how much.
Andrew: The who and when is also super important because if you enter a contract and then enter, for example, in a newer, updated contract later, there needs to be the date there where you’re like, “Hey, this is the updated one.”
Andrew: Wills and stuff aren’t exactly contracts, but it’s sort of the same idea where like whichever one is the most recently signed and agreed upon is generally the …
Jacob: Yeah, and with wills, wills is a whole other issue.
Andrew: Oh yeah.
Jacob: You have to be very careful. So wills can be superseded by the latest version, that kind of thing. Contracts also, but the problem with multiple contracts or multiple will is that you’ve opened yourself up to ambiguity. It’s hard to determine what controls when and how, especially if there’s conflicting terms or things that weren’t addressed in the first one but are addressed in the second one. What controls?
Jacob: So that leaves a lot to fight about. It’s best to always make sure that whatever the latest contract is that it has a statement that this supersedes all prior contacts, all prior agreements. This is the definitive agreement.
Andrew: This is also why it’s important to either get it right the first time if you’re making the contract or read through your contract as you’re doing it, because you want to make sure that this is everything we are going to need for the duration of this contract’s life.
Jacob: Yeah. Yeah, and the reason that’s a problem, the technical terms for these things, that’s typically like a merger, phrase in your contract that says, “All the other prior versions, this is it. This is superseding everything else.” The reason that it’s important to do that is because if there is a disagreement about a certain event that happens in the future, in the event that you have the kind of contract that would be before a court, there are rules that allow evidence of the negotiation of a contract to come in, in the event that you haven’t superseded everything else by way of your contract. It’s important to make it very clear in your contract that “It doesn’t matter what we’ve said before. This is it.”
Andrew: I feel like that’s one of the most important things about, especially contracts nowadays. It’s like you want it to be clear. The whole point of the contract is everyone needs to understand what they’re getting into, and like …
Jacob: Yeah. I’d like to actually address that a little bit because that’s one of those points of contention right now in the legal community. There is a widespread recognition that contracts have become so convoluted and so complicated and so complex, in some situations should they even matter?
Jacob: Well, courts generally uphold terms of service on your computer, other kinds of agreements that you face like when you … Any time you purchase anything and there’s tons of tiny text on the inside of the box, like, what the heck is that? Yet, courts traditionally enforce these kinds of contracts. So the question arises, “Well, should they?”
Jacob: Then, additionally, when I took a contract drafting course in law school, it seemed that they were pitching, “The legal community is turning towards making contracts easier, ease of use,” and then I got into the profession and I realized that’s not exactly the case. It should be the case. We should work towards a simpler way of writing contracts, and I’ll give you an example here in a bit, but that seems like it’s still a ways off, and it would take concerted effort by lawyers to go through contracts, simplify language, and do this. So it’s going to take lots of years, but I do think that at least people are talking about it, where I’m not sure that there’s evidence that people were talking about it 10, 20 years ago.
Andrew: There seems to almost be not an actual legal basis difference between, for example, business contracts where you’re buying a service and there’s little stuff on the back of the box, or like contracts between people. An example I was reading about recently was like … It was sort of a funny thing that happened. I think it was in Virginia, actually, where this guy was like at a bar with his neighbor and wrote on a napkin, like, “Hey, I’ll sell you my farm for like super cheap.”
Jacob: Right, right, right. There’s a case that we study in law school about that, yeah.
Andrew: Yeah, and does that count as a contract? And obviously, yes, because they upheld it, if I remember correctly.
Jacob: Yeah. I mean, it would depend. Real estate transactions are a whole other ball of wax, right? That’s the thing, is that contracts play into many areas of law. So there’s lease agreements, real estate, there’s regular transactions at the store. There’s service agreements, and so, like I mentioned earlier, different things apply to these different rules, but I wanted to give you an example.
Jacob: We started parts of the contract, so there’s a preamble. Then there’s the recitals, which is like let’s say you’re hiring somebody to replace the staircase leading up to your front door. The stairs are moldy, and so the recitals might say, “Seeing as the owner of the house has moldy stairs, and Joe is a handyman, Joe agrees to fix the stairs.” We present the general background of why we’re agreeing to anything to begin with.
Jacob: The next step would be the words of agreement, and this book provides an interesting example of the wordy versus the contemporary version where we should head towards, which is a lot simpler. The contemporary version is, “Accordingly, the parties agree:” colon, right? Basically, that says, “This is what we’re agreeing to.
Andrew: We’re on the same side. These are the terms we’re playing by [crosstalk 00:13:10]
Jacob: Now the old school version is typically like this, and I guarantee you’ve see a contract like this if you’ve done any kind of business at all. “Now, therefore, in consideration of 10 dollars paid in hand and other good and valuable considerations, the receipt of which is hereby acknowledged the parties here to hereby agree as follows …” All of that is unnecessary. All you have to do is say, “By the way, we agree,” and then keep going.
Andrew: That’s what we were talking about earlier, is the basic tenants. It’s like two people need to come to an agreement. If you have that simpler language, it just like …
Jacob: Right, right. Yeah, so oftentimes I’ll see long, burdensome contracts, and I’ll kind of shake my head. Now, I’m not saying that any time you see a long, burdensome contract that your lawyer did a bad job. I’m not saying that I change every long burdensome contract. I see. The problem is that courts have judges and judges tend to be a little older, and they’re used to seeing certain kinds of agreements.
Jacob: For certain strategic reasons, you may not want a modernized agreement because, as much as a judge shouldn’t throw it out, who knows, right? Judges can be unpredictable, but there is a trend, or at least there is a push among many in the legal community to simplify contracts. It’s coming. It’s just going to take a very long time, but contracts, simple contracts is something that we do here at Tingen and Williams.
Jacob: We want to make sure that things are clear, that there’s less ambiguity, and it should make things simpler, not just for you and your ability to read our contract and have better sanity, but also in the event that there is a legal conflict, the language should be clear enough that it should reduce legal disputes and opportunities for them.
Andrew: Yeah. I don’t really have any direct evidence for this, just me sort of thinking about this, but I feel like a lot of this convoluted language is basically going back to what we were talking about where there are exceptions to the rule, or this has come into the courts before and it was ruled the opposite way, like, “Oh, I don’t like this agreement,” so they put the language specifically in to make sure for every possible eventuality we still have the law on our side.
Jacob: Yeah. Go ahead.
Andrew: It just sort of like snowballed from there into these super long legal jargon where they do cover all of their bases, but it’s like so many different things wrapped up into a single sentence that it’s kind of silly to read.
Jacob: Yeah, so there’s debate. There’s debate about what to do with contracts, provisions, and how best to phrase them, but yeah, there’s definitely things to consider when you talk about things like boilerplate, where you have your standard disclaimers and you want to make sure that you do cover your bases. I just mentioned one earlier. You want to make sure your contract says, “This supersedes all prior versions.”
Jacob: Now, I don’t think it should take three paragraphs to say that, but you can find contracts that take three paragraphs to say that. What I just said should say it clearly enough. “This contract supersedes all prior negotiations and agreements. That’s pretty clear to me, and yet there are opportunities that people find to litigate or fight over different details. Again, this is one of the reasons it’s important to work with an attorney of your own in a complex scenario.
Jacob: Now, be aware, you’re renting an apartment. They’re going to use their lease agreement, so if you don’t like the terms, you can walk away. That’s as far as it’s going to get. You’re not going to convince an apartment complex with 500 apartments that they lease to change their contract for you. It’s just not going to happen, but in those instances where you do have the opportunity to negotiate terms, it’s not bad.
Jacob: If there’s money on the line, you should absolutely talk to an attorney, and if you’re a small business owner, and this is something I wanted to drive home. If you’re a small business owner, talk to a lawyer, especially if you’re drafting your own contracts. Make sure that they use clear language. Don’t just pull things online or use some service. Even if you do use some service and you want to use a contract, we would look at documents for you and make sure they’re okay.
Andrew: Have someone proofread it.
Jacob: Yeah. We would make sure that it covers all of your bases. Just because your buddy who owns a franchise in Minnesota doesn’t mean that contract is going to work for you in Virginia.
Jacob: Then there are other decisions you have to make in a contract, like if there is a dispute, do we arbitrate or do we litigate? There are costs associated with all those choices. Anyway, end of the day, we’re happy to talk to you about your contracts and help you out with those decisions.
Andrew: All right. Now that we’ve covered what goes into the contract, maybe let’s talk about some common contracts that people, for example, see in their everyday life. We’ve brought up a bunch so far, for example, like lease agreements or even just getting hired for a job. Technically, there’s a contract there where I’ll perform the service and you’ll pay me. There’s a whole bunch of different everyday sort of contracts.
Andrew: Even just for small businesses and stuff.
Jacob: Employment contracts and-
Andrew: Yeah, so you want to sort of talk to how people can use this information, like when they’re actually either doing business or just going around doing stuff. It’s sort of a broad question, but …
Jacob: Yeah. Well, I think that one of the interesting aspects about contracts in any context, and this is another, I guess, element of a contract that we didn’t quite get to, but there’s this idea that when you enter into an agreement, you’re promising to do something and they’re promising to do something, and we’re both promising that what we’re doing is going to work, right?
Jacob: In the average transaction, let’s say I buy from you a Snickers candy bar. You have the Snickers. I have a dollar. We say, “One, two, three,” trade it at the same time, right? Then you have a dollar, and I have a candy bar, okay?
Jacob: Now, to break it down into really extremely simple terms and to talk about the pieces of these contracts, and that’s just a very simple transaction. I’m not even sure that you would call that any contract even applied to that. That’s just a transaction, but if we did kind of break it down into contractual terms, and we’re going to do that, let’s talk a little bit about covenants, representations and warranties, okay?
Jacob: I’m representing to you before we trade hands that I have a dollar.
Jacob: Okay? You believe that I have it, and you’re representing to me that you’ve got a candy bar.
Jacob: Right? Now, we trade hands, it turns out I had a dollar. It turns out you had a candy bar. We traded those things, right? Now you’ve got a dollar and I’ve got a candy bar. Now, your warranting, in the example of a Snickers bar, that what’s inside the wrapper is indeed a Snickers.
Jacob: Are you warranting that it’s delicious.
Jacob: Why not?
Andrew: Well, I didn’t make it, and also I haven’t eaten it, so I don’t know about that specific thing.
Jacob: Okay. Now, I’ve warranted that I have a dollar and that you can use it. Is that accurate?
Andrew: Probably. I hope you’re not forging dollars.
Jacob: You hope I’m not forging dollars. Exactly. That’s kind of just, again, a very simple and extremely basic idea of the trust that’s involved in that transaction. When you have a full-blown contract, you represent and warrant certain things between the parties, and again, that’s a bit of a silly example, but it kind of lays this foundation of what contracts are built on.
Andrew: I wouldn’t say it’s too silly because it happens a lot. I’ve seen this actually a lot with Facebook Marketplace and all these sort of online transactions.
Jacob: Craigslist and all that jazz.
Andrew: Yeah. It’s a thing where it’s like if you buy it, you keep it, essentially, as is.
Jacob: As is.
Andrew: If you buy a broken-down tractor or something for 300 dollars on Facebook Marketplace or something, it’s the exact same example we just did.
Jacob: “As is” is a disclaimer of warranty.
Andrew: Yeah. I just think it’s sort of interesting. Actually, now that I think of it, what would you say is the cutoff point at which you need to make a contract for something like this? If you were selling a tractor for 300 dollars, it’s very different from selling a new-ish car for 10,000 dollars.
Jacob: Yeah. I mean, I would consider doing a contract for a car. Again, I think there are probably, and without looking too much into car transactions, again, we can help you with contracts, but it’s not like I’m a car salesman.
Andrew: Oh, yeah, yeah.
Jacob: There are probably all sorts of rules and regulations that apply to the sale of cars that apply to your transaction by default, but can you have a contract with the sale of a car? Absolutely. Of course, dealers use those all the time. They’re warranting that it will work. A lot of times you’ll see, for a new car, for example, a car has a warranty until a certain number of miles.
Jacob: That’s kind of like, I guess, a manufacturer’s warranty, but you’re representing you have the money and that you will pay the full amount, or if you can get a loan from a bank, you’re representing to them that you have the money. Then they’re representing that the car is going to work and function and be a car. Now, they’re not representing that it will be perfect or that you will never get into an accident and that it will never break down, or else no one would ever sell a car, but there are certain things that we expect.
Jacob: In the event of cars, just an example of one of those laws that applies to cars by default, lemon laws, right? Like if you buy a brand new car and it breaks down, well, they’ve got to give you another one in most states and in most circumstances. Of course-
Andrew: It varies.
Jacob: … if I’m a manufacturer, I’m going to look for all the exceptions, right? Everybody’s interested, it’s self-interest and the invisible hand and all that stuff is at work, but contracts and these default contractual rules and these verbal transactions, too, play a huge role in everyday life.
Andrew: Yeah, because verbal transactions are contracts as well, technically speaking.
Jacob: Yeah, yeah.
Andrew: Because the requirements we were talking about earlier where it’s like, “There’s an agreement. There’s things changing hands,” and all this other kind of stuff.
Andrew: It’s like talking to the person at the register at a grocery store is technically a contract in the same way that these other ones we’ve been talking about are.
Jacob: Yeah. I mean-
Jacob: Yeah, yeah, yeah. I mean, not with the person at the grocery store, but-
Andrew: I mean, yeah, yeah.
Jacob: Yeah, with the grocery store itself. You’re buying groceries from them. They’re, I guess, representing that they haven’t stolen the food. I don’t know. There are contract issues that affect us every day.
Andrew: Yeah. All right. Was there anything else you wanted to sort of close us out on with contract stuff? It’s super complicated, so we could keep going for forever, but …
Jacob: I would say this. It’s super complicated, but I would also say that there’s no magic or mystery to it.
Jacob: If you are looking at a contract for a transaction that is easy enough for the level of risk that you don’t feel like you need a lawyer, but you do feel like you need to memorialize it, you can do that on your own. I’m not suggesting that you should, right? I’m not giving you legal advice, but at the same time, if you want to quickly protect yourself, your options, say you’re buying something on Craigslist for 1,000 bucks, and they say it works, but there’s no way to test it, maybe you bring over a sheet of paper that says, “Hi. My name is Joe. Your name is Rachel, and you’re telling me that this 1,000 dollar toaster oven actually works. I’m giving you 1,000 bucks. You’re writing down your contact information so I can get ahold of you in case it doesn’t,” and we traded the money and the toaster oven.
Jacob: That kind of thing, you can do that. You can write a quick contract. If it doesn’t work, you bet your bottom dollar you could take that to a court, right? You’ve memorialized that agreement. How all of the different aspects of the contract would play out in that scenario, I’m not sure. In Virginia, you’d take it to the small claims court. Even if you didn’t have a contract in the context of a Craigslist transaction, there’s probably some correspondence between the two of you that might-
Andrew: Hint at a contract.
Jacob: … be evidence of a contract that occurred, but again, it’s a good idea. On one other point on this, we did, I did a while back did do some work with a legal clinic helping contractors who had not been paid after building buildings, restaurants chains, that kind of thing, and then at the end of the day, the contractors were stiffed. They were never paid by the developers, and they didn’t have any contracts, and they had zero evidence of how much time they’d put into the project, and so they got zero money.
Jacob: I provided online, you can google this, it’s on docracy.com, like a sample. I did it in Spanish and English because a lot of contractors are Hispanic, but you can find a bilingual independent contractor agreement, and it’s at docracy.com. Again, I’m not telling you, you should do it. It’s not legal advice, but it’s a contract example that’s available for you to use if you want to use it.
Jacob: Any time you’re doing work and you’re going to be paid later, all of those things should have a contract. It’s just the smart thing to do is protect yourself and your interests, to have at least, at a minimum, the names of the parties, their contract information …
Andrew: What they’re doing.
Jacob: What you’re doing and how much is going to be paid.
Jacob: That’s going to give you a lot more protection than the nothing that some of my clients had as a law student working at that legal clinic, so …
Andrew: I noticed something we stress a lot in our articles is document, document, document everything.
Andrew: On paper so that if it does go to court, you can just show it to the judge. There’s no harm in it on your end. It’s just an extra protection that helps you.
Jacob: That’s my thing. There’s no magic to this. It can get increasingly complex the more that there is to a certain engagement or transaction, but it’s simple stuff. We just overcomplicated it.
Andrew: Yeah, it’s as complicated as you make it. It can be as simple as something on a napkin, something written on a napkin.
Jacob: Well, you owe me a candy bar.
Andrew: Drat. All right. Well, that’s it for this Wednesday. We’ll see everybody next week, same time, same place. I hope you all learned a bunch about contract law. I know I’m certainly super interested in it. I’m going to go google it some more.
Jacob: All right.
Andrew: All right. Nice.
Jacob: Thanks, Andrew.