DON’T YOU TRUST ME ???

One Friday evening, Tunde received a phone call from his old roommate, John with an idea to “flesh out”. John explained that he might be able to find a sponsor for the project, having built an impressive network as a Business Development Manager for a top bank. “I don’t even know if this is possible, but if it is, you are the smartest engineer I know, and only you can make it work”, he said.

Tunde went to John’s house early the next day, assured John he would make it work at all costs, and encouraged him to start speaking to prospective investors. He was excited at the prospect of creating something that would benefit his company and ultimately make them both rich. It took him three months, but he finally came up with a plan and a budget.

Tunde commenced the work with the initial 40% instalment provided by John. However by the time the funds were exhausted, John had been unable to secure any investors. He pleaded that Tunde trust him and persuaded him to continue, promising that costs incurred would be reconciled and split equally by the time investors joined. They would also create a “Joint Venture” and share profits 50:50.  

As time went by, Tunde felt frustrated, realizing he was single handedly funding the project and developing the product, but he had gone too far already. Whenever he shared his concerns, John would respond with “I’m working on it. Or you don’t trust me?”  It took Tunde two years to complete the project, rather than the nine months envisaged. John was however present throughout the process, but unable to provide any further contributions, financial or otherwise.

The relationship eventually went sour, but not before John’s wife who is a lawyer helped him register the patent. John soon started a Company and with trade secrets and customer lists at his disposal, he hired an engineer and offered the invention to companies, including Tunde’s old clients.

Sad you say?

The truth is most of us enter into all kinds of business arrangements and “partnerships” where we frequently give out business information based on trust, hoping the conversation would lead to a fruitful partnership. We however do not protect ourselves, and basically put our brands and entire business in jeopardy in the process. It is important to execute contracts, and not just a random document, but a thoroughly drafted one, signed by all parties involved and capable of being tendered in court. Don’t just assume that, because the parties are getting along well now, they will continue to get along in the future. The time to ensure that everyone is on the same page is, indeed, at the outset — long before any problems arise. 

If nothing else, what we must take away from this scenario is the importance of ensuring that parties’ desires and agreements are written down, understood, and complied with. Courts and alternative dispute resolution mechanisms have always operated on the Latin principle “pacta sunt servanda” which in English means “agreements must be kept”. Therefore whatever you have signed will be strictly interpreted as written and will bind you.

What to do now? Do yourself a favor by refusing to start any job or perform any obligations without a written contract whose terms you understand and agree to. You may not be able to save the relationship when a business partner decides to jump ship, but you can save your investments with a contract.

Here are a few helpful tips after you have decided to sign a contract:

• Get a lawyer to draft it, or to review any draft received. It is dangerous to download contracts off the internet (More on this in a subsequent post).

• Read every clause, not just the ones with your rights and payment information. Read those “standard” clauses and fine print. Even when you have sought a lawyer in your negotiations, performance of the contract is your responsibility and a lack of understanding could get you sued for a breach. Do not sign under pressure, and seek clarity where you have doubts.

• Do not leave blank spaces on a signed contract – cross them out if you have nothing to add so they cannot be altered later, and then initial each page to be safe

• Make sure all subsequent “small/minor adjustments” are also written down and signed by both parties

• Always obtain copies for your records after signing

You will definitely agree, that this time save and certainty is much better than the chaos that often accompanies business disputes and fallouts.

Document your agreements now. A stitch in time saves nine!