An agreement depends more than anything upon the honor of the parties.
The title of this article expresses how some people approach contracts:
It’s more important to tie up the other party entering the agreement than it is to worry about whether, in fact, I have to honor the terms – because once I have them roped in, I can exploit that leverage to get further concessions later on.
This is particularly a problem if you have a very tight deadline. The imminent and irreversible deadline gives the parties perverse incentives to threaten to kill the deal if they didn’t get more concessions. It can be exhausting.
In the end, somebody has to blink and give up more money, rather than lose the deal altogether. It’s a very uncomfortable and very anxious way of doing business, but people do it to each other because they can. And the short-term and terminal deadline leaves no way to stop them.
The lesson, of course, is to try to avoid putting yourself in that position.
- Don’t hand the other side that kind of leverage over you.
- Don’t assume that just because you think you have that kind of leverage over them, they are going to blink.
Clients will sometimes get very upset when the other party to an agreement does not honor it. They’ll say, “They can’t do that!” The answer is, “They just did.” You can’t stop them. You may be able to punish them under the terms of the agreement, but sometimes there isn’t a remedy that fully compensates for losing the deal or the extra costs and legal fees. Closing the deal is almost always more profitable than collecting damages after years of litigation.
Which reminds us that the single most important words in any agreement are the signatures.
Have the parties bargained in good faith to carry out what they have agreed to? If they haven’t, all the words in the world can’t stop them from insisting on renegotiating the deal. This really frustrates people who like to deal honestly and don’t appreciate being abused, but it happens.
So, the most important lesson is not only to avoid tight deadlines, but avoid untrustworthy people. Do business with people that you know and can trust. If you are dealing with strangers, accept the risk that they will be unscrupulous. Be prepared to lose money if the other party doesn’t do what you want. Remember that a written agreement — although essential — is not sufficient by itself to protect you. Sometimes, you are just going to be stuck renegotiating the deal until one side or the other gives up.