LEGALLY SPEAKING, IT DEPENDS: Agreements – Demystifying Contracts

Christopher Schiller is a NY transactional entertainment attorney who counts many independent filmmakers and writers among his diverse client base. Follow Chris on Twitter @chrisschiller.

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“Contract” is a dirty word for some. Say, “I'd like a contract,” and you may get a reaction equivalent to your subject feeling like you've just hired an assassin/hit-man with them as the target. (Sometimes that's the case but usually only in the movies. Usually.) It's a bit odd, this phobia about a few pieces of paper. What these skittish types don't seem to recognize is that the formal form of a contract is only one means of expressing a binding, legal agreement between parties. Most of these “deal on a handshake” types, much to their chagrin, are just as legally bound to their arrangements as if they had sat down and signed their names on the line where indicated (in triplicate or not.)

I have gone in-depth in decoding what is contained in a more formal, typical writer's contract elsewhere. This article will pull back the veneer that disguises many of these other forms of “no-contract” agreements exposing them for what they are, legally binding, contract-like agreements, if not actual contracts anyway. Maybe by showing what a contract really is and how agreements, whatever their form, are looked upon in the same terms when disputes need to be resolved by the courts, there'll be more ease with formalizing agreements in an accepted, contractual form. One can try, right?

Throughout law school there is a striving to reduce the elements of an area of law into its smallest constituent parts in order to define it. The more common the area of law the more variation in the attempts. Contract law runs through nearly all legal arenas and therefore has had a tremendous amount of attention to this end. The most concise definition of what a contract is that I have heard (and still remember) can be reduced to two, four word phrases.

Meeting of the Minds – This concept is at the core of every agreement. In essence, it is the fact that you can't come to an agreement unless both sides are talking about the same things. If one side is thinking they're selling apples and the other side is thinking they're buying oranges at some point the two sides will realize that it's all been a waste of time haggling over price. There was never a bargain to be struck in the first place. Understanding exactly what is on the table-- and what is not-- is key. Clarity is paramount in deciding this.

The concept seems clear cut on the surface and you might wonder why make a fuss about something so basic, but, the concept can affect deals in subtle ways. You might all agree on the subject matter to be decided and assume standard business practices will cover the rest of the details. But when your idea of 'standard' doesn't match the other side's then the seeds of trouble are sewn. (One of the reasons why I'm always saying, “There's no such thing as a standard contractual term.”)

For example, a writer and producer may agree on the price the producer will pay to purchase the writer's script. They may agree that the writer will do all drafts asked, for an agreed fee, and that the writer will get a hefty bonus on the first day of principal photography. All good, right? But what if the writer took a lower up front fee to help the producer out expecting that she'd only be waiting no more than a year and a half before the cameras roll for the big bonus payout. When the production still hasn't been mounted ten years on, the writer might feel put out even if the producer never meant to promise a particular time frame to get the project going. Did the writer and producer actually agree to the same contract? If the writer wouldn't have conceded so much in the initial payment had she known what the producer intended, then maybe they didn't. This is why your expectations and promises are best laid out in writing in the contract. The black and white of it solidifies that all parties are agreeing to the same thing.

Bargained for Legal Detriment – The other significant aspect to a contract is summed up in this second set of four words, a favorite of my Contracts professor (and one I wish I had remembered better on the final exam.) The somewhat daunting phrase encapsulates a considerable wealth of the necessities for recognizing a contract as opposed to other forms of business dealings.

Let's start with the Legal Detriment part. That's a fancy way of saying, “I don't have to, but, I'm gonna.” For a contract to be formed both parties must be doing something they are not legally obligated to do (or not obligated to not do.) It's an exchange of both sides putting themselves out to some extent in expectation of the benefit of the end goal. The exchange doesn't have to be equal, but, it can't be already committed. No double dipping.

The bargained for part attempts to separate out a contract from other forms of dealings. A tip for a service rendered above the base pay for that service is not a bargained for gain, and therefore cannot be contractually required of the tipper. (Think, tipping the concierge at a hotel, not the waitstaff at a restaurant if you don't want to wade into convoluted language and legal quagmires.) Again, it doesn't have to be equal positions at the bargaining table, but, bargaining must be available for a true contractual arrangement. Even “take it or leave it” deals or adhesion contracts (e.g. the terms on the back of an entertainment venue ticket) have the “leave it” option as a bargaining ploy. Not a great one, I admit, but, as long as you are not forced into accepting the deal, it can be a contract.

If you have those eight words going for you, congratulations, you have a legal contract. Even if it isn't written up by a lawyer, signed in triplicate and written on sheep skin, it still has all the legal weight and authority afforded contracts. But even this low threshold doesn't hold all the possible contract-like arrangements we find every day.

Legal agreements are often hidden in plain sight. But just because they don't look like contracts and we can potentially overlook them doesn't diminish their legal weight and enforceability. Let's take a simple example.

As I look out my window I recognize it's time to mow the lawn again. Suppose as I ponder just how hot it is and how much more embarrassed I'd be if I let it go one more day, a neighbor kid walks by, sees my forlorn look and says, “Want me to cut your lawn for you?” In a moment of weakness I say, “Knock yourself out, kid.” The kid immediately runs off down the street, laughing. I think nothing of it (kids laugh at me all the time) and go about my day inside. Two hours later I hear a lawnmower outside, but, don't put two and two together until a half hour later when the kid knocks on my door, all sweaty and says, “That'll be $5, sir.” Do I have to pay him?

This is a case of what is legally referred to as promissory estoppel. Even though there was no bargaining, we didn't set on a price or terms of when or what quality was expected and I didn't offer any legal detriment on my end, it doesn't end there. The kid took my participation and acquiescence to the idea as enough of a promise to put himself out. He ran down the street to where his brother was pushing the lawn mower home to tell him they had another client. The mower was out of gas so the two of them walked the more than a few blocks to the gas station and pumped more gas into the tank, incurring a debt. His brother had to leave so the entrepreneurial kid pushed the mower all the way back to my house and set about fulfilling his task. He cut all my grass without me coming out and stopping him. He put himself out a considerable amount on the assumed promise of a reward for his efforts. Now the amount might be disputable, but, the fact that the kid did the work relying on the promise of recompense means he's got something coming to him. If the situation was slightly different, the kid just mowed the lawn without asking me first, I would be under no obligation – there was no promise of recompense offered of any kind.

You can see how, when it comes to contract-like situations, you have to be careful not only what you say but also what others take of what you meant.

Taking that thought to the extreme, let's next look at a very popular (and very problematic) pseudo contractual form, the verbal contract. At its heart, a verbal contract should contain all the elements of a regular contract. The fact that it is only spoken, not written down doesn't remove it from the requirements of the 8 word phrases to be valid.

But a spoken contract has some very stringent limitations. For one, there are some things that just can't be contracted verbally. Some jurisdictions preclude verbal contracts either completely or recognize their validity only for the most minimal of agreements. The law has long recognized that people tend to forget what is said after a time, so, long term verbal contracts are not allowed. A more formalized version of the lawn mowing example would be a recognizable contract because the simple tasks at issue can be completed within a year (hopefully sooner.)

A verbal contract must only have limited terms that can be understood without complex explanation. You can't have a binding verbal agreement on complex negotiations. Sending a crew member out to buy replacement coffee for the cinematographer after the director kicked over his old one and promising to reimburse the crew member when he gets back, is a verbal contract. Negotiating the distribution deal for the domestic market for the VOD and Pay Cable markets can't be. Though both of those conversations could take place in a short span of time and reach agreement rapidly (and verbally) the more complex agreement will need to be “papered” to be legally binding so that all the deal points are covered and formally agreed to.

Don't be fooled. Many an industry mover-and-shaker touts that they do all of their business under the mythical handshake deal, and many try to avoid the details as long as possible. All the successful ones, though, understand that you have to follow things up with a formal and negotiated written agreement.

I make a big fuss encouraging my clients to consider that every agreement needs to be written down in a contractual form. They often are worried about the endless negotiations that will go into figuring out what will go into the contract. Actually the papering over a deal is usually executed in the reverse. Nearly all solid contractual agreements are just stipulations of what has been already agreed between the parties. When the proper amount of consideration has been paid to what the actual terms will be, what the responsibilities and obligations of the parties will be and what the conditions of formation and resolution of the deal can be, the lawyer's job becomes that of a scrivener, writing down these elements in language agreeable to all and making sure there are no legal issues unattended to or logical holes left without answers.

This, generalizable agreement first, then more formalized treatment later approach is quite common. In fact, it is often seen in the industry practice of using short form agreements, where the most important deal points are hammered out and the details are worked out later in a longer form contract. Because of the nature of entertainment agreements it is not uncommon for the short form agreements to be reached in order to move forward with the project and the long form contracts aren't actually ready for signatures until much later, sometimes after the filming is already complete. As long as the people going into the relationship know what to expect from each other as deal issues, they can move forward knowing that something not unreasonable will eventually be agreed on. It is a risk, but, an acceptable one for many situations. If there is a sticking point, the short form agreement would still be a valid contractual structure for recourse, so, make sure your most important deal points are in there.

At their core, any legal agreement can be broken down to a few key elements, obligation and expectation. Both sides are making gestures to get something they value. They commit themselves to offer something or live up to promises they are willing to keep in order to receive that valuable reward. Clarity assures that both sides know what they are getting into. The legal recourses of a formal, contractual structure assure that the obligations will be met.

The assurances offered by the other side allow you to put yourself out further than you would venture without them. And there is always the comfort to know that the courts or some other legal recourse are there as a safety net in case things go wrong.

The courts look at contracts and contract-like legal structures very similarly. When a dispute is brought to them they try to have a simplistic approach that can be broken down into a very few guiding principles. “Was there an agreement?” “Was the agreement lived up to?” “What legal recourses are available within or without of the agreement?” The answers to these questions, in all their complex variations, will give the court its end target using the limited means of recourse at its disposal.

But there is one overriding principle the courts go to time and time again. “How to make the parties whole.” If the agreement works, that's easy, each gets what they expected. If the agreement is broken, the court finds a way of restoring the balance between the parties, be that restoring the parties to where they were before the agreement (as best as that can be achieved) or by penalizing a party that was unfairly taking advantage or cheating the deal. That's it in a nutshell.

I use the generic term “agreement” often when writing up contracts specifically to not trigger the contract-phobic reactions of some parties. Does it matter what a document is called? Not to a judicial official. The content and intent of the parties is what matters.

Agreements are the lifeblood of this industry. Even without the “contract” label, there are enforceable legal obligations constricting actions and allowing the industry to operate all the time. Contracts are a time tested way of assuring those agreements are solid, but, they are not the only way or only recourse. Clarity is key to whatever form the agreement takes. Assurance comes from certainty, action is driven by obligation, expectation is met by anticipated delivery. The particular form taken? As always... it depends. Now if you'll excuse me, I have to go cut the grass.

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