Principles of Contracts: What is a Contract?

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Previous Chapter: Introduction
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A contract is probably not what you think it is. It’s not an ironclad dictate that you must sign or die. It’s not something that strips you of your rights. It’s not even a piece of paper (although the paper is an important part of it). Faustian bargains to one side, a contract does not entitle someone to your soul. Believe it or not, it’s fairly difficult to sell your creative work in a matter where you won’t eventually gain the rights back (this doesn’t mean a bad contract won’t hurt you–it will, a lot, in any field of business).

A contract is much less, and sometimes a bit more, than all of these. It’s simply an agreement between two parties that bind each party to a particular course of action for a specific period of time. When dealing with intellectual property (as all of us authors and artists do), those contracts specify the terms of the license that the copyright holder grants to the publisher (or producer or other purchasing party), the terms of that purchase (payment, reversion and expiration clauses, sometimes the scope of work, etc.), and the obligations that the parties have to one another for the duration of the contract (delivery dates, errors and omissions, etc.).

The “agreement” part of that definition is important. Contracts made under coercion or duress care invalid (what constitutes “coercion” and “duress” varies by jurisdiction, and almost never do “ignorance” “greed” and “shortsighted fear” qualify the signatory to a do-over). You must understand this, because it implies something very basic that is, for my money, the least understood aspect of contracts: Everything is negotiable.

Most people don’t realize this: very rarely will you ever encounter a true “take it or leave it” deal. Since an agreement must be reached, both parties are usually willing to bend, at least a little, on something in order to insure the deal.

Then again, most people don’t read or understand the contracts they sign, or don’t know enough about the relevant laws to understand the contracts they read. Our language has a word for what happens artists who can’t read and/or understand contracts:

Screwed.

When you put your pen to a dotted line and sign your name, you can be held to your agreement in court. You can be forced to fulfill terms that you later decide are unfair. You can be forced to pay reparations for not living up to your end of the bargain. Sometimes, though very rarely, you can be sent to prison for fraud when you are merely guilty of poor judgment.

I am not a lawyer, but I have seen my fair share of contracts and have learned a few good tricks to help you get your head around what you’re reading.

Know What You’re Signing

There is no substitute for a familiarity with the law and an eye for detail. Your agent is not a substitute. The integrity of the person you’re negotiating with is not a substitute. Having a good lawyer helps, but not even that is a good stand-in for knowing what you’re doing.

Why not?

Your prospective business partner, client, or publisher (henceforth: partner) might be a person of the highest integrity – but it’s not his job to look out for you. He might be very generous and help you through a contract here and there, but he has a set of responsibilities that have nothing to do with you (for example: the representative of a company is responsible to his boss and shareholders, the owner of a company is responsible to his employees, a friend is responsible to his family and employer, etc. All these priorities, and a few more, come before you, even in the best of relationships). If your prospective partner, client, or publisher can’t trust you to look out for your own interests when you negotiate, how can he trust you to behave professionally in other ways? If you’re a newbie, he might give you the benefit of the doubt, but that only goes so far.

Speaking as someone who’s been on both ends of this situation, working with someone who doesn’t know how to read a contract or negotiate for their own interests is a worry. It often (thankfully, not always) means that such a person doesn’t know what they’re signing up for, and a person in that position is the one most likely to screw up the deal and cause a lot of drama. This doesn’t happen through malice most of the time, it happens through misunderstanding, and it erodes trust to have that cloud of doubt hanging over a deal.

Trust is the central component to all business deals, and when it’s shaky, it’s very easy for the deal to blow up. When it comes to contracts, trust has a few important parts: you must be able to trust your partner to stick up for his own interests negotiating the deal. You must trust that he will only agree to terms he can deliver on and live with. You must trust that he will not take it personally if you hold him to the terms of the contract. You must trust that he will act in good faith to deliver on the terms of the contract, that he will not break the law or implicate you in criminal activity in the course of fulfilling the contract, and that he will work in good faith to settle any disputes which may arise. He needs to trust you in all the same ways.

If that trust isn’t there, then you’ve got a good chance that you’re in for some serious headaches and misery before the deal is done.

Compounding the issue of trust is the basic problem of human nature. Perhaps most people are decent, and certainly you and I always try to do business with decent people. But it’s human nature to take the easy road (emotional blackmail, equivocation, laziness, and theft are all common hazards of doing business) as much as it is to behave decently. Even if most people are mature enough to suppress or channel their dishonest impulses, not everyone is. Sooner or later, you’re going to do business with someone who’s incompetent, or worse, someone who’s a snake and is interested in rigging the game to take maximal advantage of you.

Taking advantage of an artist is a pretty easy thing to do. It’s almost, but not quite, as easy as scamming an elderly widow (of either sex) or the parent of a young child. All three of these groups have something extra at stake in the deal, and that thing makes them easy to leverage into making bad decisions. With the elderly who don’t have close family or communities, the promise of community can (talking on averages) provoke them into parting with their money or valuables very rashly. For young parents, push the button that promises prosperity or safety for their offspring. For artists, all you have to do is pull the approbation lever – flatter them, promise them fame, and they’re yours.

Every con artist in the business knows this, and over the years more artists than can be counted have fallen for it, from musicians to authors to actors to screenwriters to photographers. This basic fact about our emotional makeup makes us prey for the dishonest.

Porcupines are also prey, but they’re not easy to catch and hold on to. Learning good principles of contract negotiation is the artist’s equivalent of growing porcupine spines: it makes us unappetizing prey.

It also makes us better business partners.

Next time, The Third Cousins Rule, and why it can save your ass without pissing off your partner.

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