Everyday Contracts: The Hidden Potholes to Your Financial Independence
We sign contracts throughout our days. Renting cars. Downloading software. Joining an actively managed financial plan. Executing releases to join a gym or to allow your kid to participate in football. That is because we have incredibly successfully established a “just sign here” culture worldwide, in which fine print is the norm and no one raises an eyebrow when you don’t read or ask questions about what is in front of you. Why do so many people seem to give as much thought to stamping their Elegantly Scripted Name on multiple sheets of terms as they do deciding to “Like” their Aunt Jennifer’s photo of her French Bulldog out for a leashed walk wearing a hand-knit sweater? Because we have normalized the signature. We have normalized the expectation that we have to sign. We have normalized, most unfortunately, the assumption that the terms are written fairly and with some great legal system in place to protect us.
For all the offense we implement in our financial planning by creating budgets, charting our spending, and balancing our portfolios, we need to perform an equal amount of defense against great potholes. Materialism is one such pothole. But contracts are an equally dangerous, often overlooked chasm. I want to tell you seven things everyone should know about contracts, but no one talks about.
1. Every Contract You are Handed Can Ruin Your Financial Future.
Most people look at a contract as a piece of paper they use to open a door to goods or services. Instead, you should look at every contract you are handed as a train track which may derail your financial journey.
Every contract is a plan, written by a lawyer hired by a company to protect THAT COMPANY at all costs. They do this by heaping all the risk onto YOU, the Signatory. The Company offering the contract is that lawyer’s client. You are someone who is entering into a business relationship with their meal ticket. Even if riding a pony for ten minutes at the fair does not seem like much of a relationship, it can change the life of everyone involved. It is the lawyer’s job to ensure that you, Signatory, are not only walled off from extracting money from the Company, even if you have a legal right to, but that you will address any problem the Company has on the Company’s terms.
The most common way a contract can ruin your financial life is by signing you up for potentially exorbitant liability costs. Take a look at the paragraph entitled “Indemnity”. This discusses what YOU pay for in court. This may include the Company’s own failures, your claim against the Company to do what they promised you, AND Company’s lawyer’s fees. Essentially, Indemnity articles are signing YOU up to be the Company’s insurer. YOU will be used as the Company’s human shield. This can absolutely ruin your financial future in the event of a claim. Their lawyer wrote it that way for one reason: to protect the Company, their client.
Why do legal systems not care about you signing your financial well-being away? Because you have freedom to contract. You have freedom to negotiate those contracts. If you sign up to “indemnify” the Company, you better be ready to pay for everything you say you will pay for. Are you?
2. You Will Never See a Fair Contract.
You will never, ever, in your life be handed a fair contract. I would get rid of that expectation right now. The Company’s lawyer has no interest in a fair contract, and neither does the Company.
In fact, that lawyer who wrote the contract can expect to lose their Company client, their livelihood, and possibly even their license if the Contract that the lawyer writes for the Company does not attempt to send you to the cleaners.
Contracts are written as step 1 in a bargain. They are the Company’s wish-list of terms to protect the Company. Who was representing You when the contract was written? Who was your lawyer, attorney, legal counsel? Nobody. It is up to you to counter-offer to start building Signatory’s wishes into that business plan.
Here are common contract clauses that demonstrate how contracts seek to protect the party they came from:
· You may never bring a claim against us, ever.
· Pay on time, or pay a penalty.
· We do not represent that we will perform our job to any standard.
Stand up for your plans for this bargain, and take aim at those terms. This brings us to another point….
3. You Can Negotiate Every Contract You are Handed.
Please do. Please, please do.
As stated, Contracts are written by the Lawyer for the Company. They are not written by the Lawyer for the Company and You. You must advocate for You.
So when you are being asked to “Sign Here” when buying a vehicle or hiring an Elvis impersonator for your wedding ceremony, go ahead and cross out what does not seem right. Yes, cross it out. They’ve given you that pen, right? Do this:
“Delay in Payment. Client will pay damages to Company accruing at $1,000/day for Client’s delay in paying Company.”
But wait! You have a pen, so you can also write in terms. Go ahead, write in:
“Defense Fees. In the event of dispute, Client will not
be responsible for Company’s legal fees.”
Now, I understand it is not that simple if you are downloading software and have to click “I Accept” after that page of terrible terms, or decline the download. That brings me to the next piece of great news…
4. You Never, Ever Have to Sign a Contract.
In fact, there is a legal concept of “duress” which protects you from ever being forced to sign a contract. Thus, if you must click “I Accept”, or are in another position when the other side seemingly won’t budge on those terms, you can negotiate with your feet and walk away.
But before we tear up your latest employment offer, I must point out, you do have to be prepared to face ramifications for not signing any contract. Your kid does not get to play football this fall on the club team. You do not get to download that software. If you cannot negotiate, and you walk away, you have to be ready for a certain sacrifice.
5. A Contract is a Plan You Sign on the Good Day to Prepare for the Bad Day
A Contract is a business Plan with a capital P. It describes how the deal will happen, especially detailing what happens when the Plan goes South. No one thinks they will be injured while skiing. Nobody envisions that this contractor will use defective plans when renovating your basement.
So often people who read the terms of the Contract (these people are the minority) begin thinking:
“I could be required to fly to Singapore for Arbitration? And I would have to pay ALL the arbitration fees? Well… that will never happen anyways.”
This is what every lawyer writing a Contract wants you to think. They want you to see this Plan they have laid out for your business interaction, which wildly favors their client Company, as an esoteric fantasy, something which can be ignored as we all know your days will be filled with nothing more exciting than your favorite Netflix series.
Signatories should rise above this expectation. Instead of seeing a Contract as some fantasy you have to sign so that you can get that lawn service or allow the General Contractor to gut your kitchen, you should see a Contract as managing expectations between you and the Company. How do you want to be treated? Do you expect the Company to perform or deliver in a certain way (for example, on time, or in accordance with contract requirements? Where would you want to resolve disputes if that bad day came? You have the right to drive your bargains, and should expect that you, and Company, can look to your Contract to guide your expectations for that bargain.
6. A Contract is a Reflection of that Company’s Culture.
A good Contract should manage the expectations between Company and Signatory. So, if you are handed a contract which puts you in the corner, requiring you to waive all rights against the Company, indemnify and defend Company for Company’s own acts, and penalizes you for any delay caused by Company themselves, feel free to ask “Why does this form exist? Why did Company not address how unfair this is? Surely, I am not the first person to complain about this unfair provision…”
It's always fair to ask: Do I want to be partners with a Company which does not treat its business partners fairly?
This feeling should be especially questioned if YOU are Company’s Client. There is no reason to be on the back foot if you are the person footing the bill.
7. A “Waiver” and/or “Release” is as Bad as it Sounds.
Imagine going on a date with a budding romantic partner, who then tells you “I’ll have a relationship with you, but you will forgive me for anything I do wrong.” You’d lose their number fast!
Forms called “Waiver” or “Release”, or the oh-so-clever “Waiver and Release” serve to do one thing: let the company handing it to you off the hook. You are asked to sign these all the time, and they are never, ever in your favor. If you want to rent ice skates and practice your best triple axels at the rink, why should you have to sign a Waiver and Release so that the ice rink does not have to keep those blades secured, or the ice groomed? You already pay for the goods or service, why should you ever release someone else from what is intrinsically their end of the bargain? If the contract throws in language stating “Renter shall indemnify and defend Rink for any claims Rink brings…”, congratulations, you have signed up to pay for Rink’s attorneys' fees to fight you in court. So, if you are injured because the Rink did not sharpen those skates you paid for, and you claim for damages, you may receive a love letter from Rink with their attorneys' fees invoice attached.
Next time you see a “Waiver” or “Release” (which may simply be an article within a larger agreement), cross it out, if you can, before signing. As discussed, if you see an article saying you must “indemnify” and/or “defend” the company for bringing a claim, cross it out. There is no reason for any company to have the privilege of having no repercussions for acting without care.
Company contracts are written to heap financial liability onto YOU, not the party handing the document your direction. So next time you are handed a contract, and you do not have time to seek trusted legal counsel, remember:
1. READ that contract;
2. cross out what you do not agree to; and
3. feel free to walk away from a bad deal.
If you face liability from a contract, you could incur bankruptcy or other financial ruin from which you may never recover. Always have the courage to walk away from a bad deal. Your wallet and your future will thank you.