Why You Should Do Business on a Handshake

Business owners who are surprised that contracts are not self-enforcing surprise me. Why else are there so many litigators? The sad truth about contracts, a truth lawyers don’t usually say out loud, is that a contract only makes it easier to sue someone; a contract does not help you avoid litigation. To avoid litigation (and I guess 99.49% of business owners want to), do business on a handshake.

A let’s-do-business handshake acknowledges two things: (A) you believe the other person to be trustworthy and (B) you and that person have reached an understanding about whatever it is you want to do. So before you sign a contract, be sure you can shake on it.

Trustworthy. It’s no accident that “A Scout is trustworthy” is how the Boy Scout Law begins. Any relationship worth having should begin with trust, so before beginning, check out your prospective business partner. Sure, “trustworthy” is hard to boil-down to a checkbox on a due diligence list, but asking the right questions can sure go a long way.

Recently I had the pleasure of attending a presentation by Frank Abagnale, Jr. Mr. Abagnale’s story is portrayed in the film Catch Me If You Can. Formerly infamous as a young imposter and forger, Mr. Abagnale is now famous for his work investigating and, most importantly, preventing fraud. Mr. Abagnale explained that when a fraud encounters someone who asks too many questions, the fraud most likely moves on to an easier target. So while you might not be able to be absolutely sure of “trustworthy,” you might prevent being taken advantage of by being careful and thoughtful about your business partners before signing the contract.

Understanding. Having a contract is not nearly as important as negotiating a contract. The value of a contract done right is that it forces the parties to communicate their expectations of a relationship. Those communications should be facilitated by the lawyers drafting the agreement for the two sides so that each side understands the other. Unfortunately, instead of understanding, obfuscation (how’s that for a fun lawyer word), whether intentional or not, is too often the result.

Stay engaged with your lawyer as she or he negotiates a contract for you. If there are aspects you have trouble understanding, it’s not because you are dumb; rather your lawyer needs to do a better job. Kindly ask him or her to explain and to explain again, as necessary. I value clients who are active participants in their legal affairs and I bet your lawyers will feel the same way.

Once the process of communicating expectations (i.e., negotiating) is complete, the contract is signed and hands are shaken. The parties trust each other and understand what each needs to do, so the contract goes into a drawer, hopefully to be pulled out only to refresh an understanding. Do this and you end up with a contract that should do what all good contracts do: gather dust as opposed to being Exhibit A at trial.