Five Reasons Small Business Owners Should Not Rely on Online Contract Forms

We live in a Do-It-Yourself society, especially now that the secrets of the universe can be unveiled with a simple google search. If you can learn how to build a bomb or do brain surgery on the Internet, surely you can figure out your own legal advice. So, one of the most common questions I hear is: Can’t I just download a form (or use an online service like Legal Zoom), instead of paying for a real live lawyer?

It’s a good question. And, being a life-long “Do-It-Yourself-er,” I understand the appeal. But there are lots of reasons why this is a really bad idea . . .

1) The Short Answer: Would you really attempt brain surgery based on what you read online? No of course not — at least not on someone you cared about! And while drafting legal documents is not quite the same as brain surgery (and usually won’t have a life or death impact), it is similarly difficult to do well without lots of specialized training and experience. Here’s why:

2) You Can’t Really Tell Good From Bad (And Why It Matters): When a non-lawyer downloads a legal document he has no way to determine its quality. I’ve found many “legal” documents on the web that clearly were not drafted by lawyers (this is especially true in the world of web developer and artist agreements). Even if you download from a supposedly reputable site, like Nolo.com or Legal Zoom, there is a wide range of quality in the documents available. Without legal training, you have no basis for determining best, worst or mediocre.

Why does it matter? The courts are filled with cases that turn on the meaning of a single contract word. A recent example: A researcher at Stanford University agreed to assign all his copyright and patent rights for his scientific inventions to Stanford. However, rather than state that the employee “hereby assigns” all his right, title and interest to the inventions, the agreement stated that the employee “hereby agrees to assign.” See the difference? Pretty subtle, right? Would you even notice the difference if you downloaded the form? And if you did notice the difference, would you know what it means?

As part of his research, the employee visited another lab, where he was required to sign a “visitor’s agreement,” saying, in part, that he “hereby assigns” the patent to any inventions he created while visiting that lab. Stanford later filed to patent the researcher’s invention, but when Stanford sued to protect the patent from infringement, the court ruled that Stanford did not own the patent rights. The court held that the wording “agrees to assign” meant that the employee agreed to make an assignment at some point in the future, whereas “hereby assigns” means that the assignment has been made. Therefore, the lab owned the assigned patent, and could sue to enforce the patent rights, but Stanford (which had paid for the research) was out of luck. All because of a poorly drafted agreement.

3) You Can’t Tell Which Form Is Right For Your Business: Even if you could kinda, sorta tell a well-written contract from a bad one (and obviously, even Stanford sometimes has a hard time with that), you will still have a hard time choosing the right contract form without some legal training. That’s because there are many, many different ways to draft a contract, depending on which party’s interests you want to protect and how those parties will share the risks. Almost all the contracts you find online are written from one party’s point of view.

So, for example, if you are the buyer, you want to include language protecting you if the goods don’t work the way they’re supposed to. But if you’re the seller, you want to include language limiting the length of the warranty you will provide. If you’re a business hiring a worker, you may want to include language making it clear the worker is an independent contractor – but if you’re the worker, you may want an agreement that makes it sound like you’re an employee, so you can collect unemployment if you’re laid off. Again, all these small changes in language can have a big effect if you ever get into a dispute.

When you hire a lawyer to draft or review a contract, what you are mostly paying for is the education and training it takes to make sure the contract works for you.

4) You Don’t Know What You Don’t Know (or the Law of Unintended Consequences): I had a client ask me to review a sales contract he had entered into with a big distributor based in Florida. Though the distributor had drafted the contract, my client had done his homework. Before coming to see me, he had added a paragraph he found on the Internet, saying that any dispute under the contract should be resolved in a California court. He figured that way, if there was a problem, he wouldn’t have to go to Florida to fight about it. Pretty smart. Except, he didn’t notice that the agreement specified that, in the event of a dispute, Florida law would apply. Which meant, effectively, that when there was a dispute under the agreement, he would have to hire a Florida lawyer to come to California to litigate it in a California court. Which would be very expensive. Not so smart. . .

5) You Get What You Pay For: When you hire a lawyer to draft an agreement, you get someone trained and experienced to protect your interests. It should be an interactive process, with questions and answers on both sides. Then, even if the lawyer uses a standard form that he gets online (or has used for a previous client), you can be fairly certain the agreement will make sense from a legal standpoint, and be customized to fit your business needs. And if you want to save some money, go ahead and download a form that you think will fit your needs. Just make sure to have a lawyer review it and make sure it’s ok before you use it for the first time. Have I convinced you yet???