Business contracts form the basis of a business agreement between parties. A contract should be fairly specific about what each party is expected to provide, and what each party will receive. Put very simply, it usually is an agreement of a client to pay a specified amount of money over a set period of time, in return for which the vendor agrees to provide a goods and/or services.

The incentive to enter into a contract will vary somewhat, but the benefits to a business are that a “guaranteed” revenue stream will exist for a known period of time. This allows the business to amortize any upfront expenses, calculate ongoing expenses, and from that, determine a reasonable profit.

The benefit to a customer frequently is a reduction in the price of a good or service, which is offered because they promise to provide a revenue stream for a set period of time. The customer benefits and the business benefits. Is that about right?
PAUL: Jim, as you noted, contracts are essential to successful business operations. But contracts, like laws, may be advantageous, disadvantageous, or neutral from a moral or ethical perspective for one or both parties.

Contracts, as legal documents, are designed to assure that the terms agreed upon by both parties are appropriately carried out. They are necessary for the type society in which we live — we move a lot, do not quickly form or identify with communities, are concerned with more immediate matters than with long-term relationships, often have a hard time even making contact with a real live person to discuss matters of dispute.

You know the familiar picture all too well. It is not nostalgia nor pining for the good old days, which sees the moral context for our business and personal lives today differently than a generation or so ago.
JIM: Yeah. The “Good Old Day’s” when “a man’s word was his bond.” We don’t see much of that any more.
PAUL: When your father or mother, or certainly your grandfather or grandmother, were doing business in their day, in most cases they were doing so in a culture which was “up close and personal.” There are still some pockets of that, as a student reminded me recently. He related how when he was growing up in a small mid-western community, he and his younger sister crossed a busy four lane highway to get to the little Mom and Pop Grocery to get some candy. No sooner had they gotten safely across than the store owner called their parents who immediately came and got them.

Those people knew one another and their moral code demanded their doing all they could to protect one another and advance one another’s welfare. If they went back on their word, or cheated in what had been promised, or misrepresented not just the facts but even the expectations, or lied about what they could or would do, or took unfair advantage of someone, whether willfully or not, word would spread like wildfire throughout their close-knit community.

They would have to deal then, with not only loss of business but even more with the loss of their good name, acceptance in the community, and reputation.
Written contracts were not the basis of those business relationships. Integrity, honor, and trust were even more fundamental. Scrupulous business persons and equally scrupulous customers often transacted costly deals with nothing more than one another’s word. The scurrilous ones were quickly found out and dealt with accordingly.
JIM: “I don’t think we are in Kansas anymore, Toto!”

Contracts now are almost essential for doing any sort of complex business in today’s fast-paced world. Failing to honor a contract is every bit as bad as “breaking your word” was in the “good old days.” Yet we see more and more that some individuals and businesses just don’t want to treat a contract as much more than a suggestion. When that happens, any hope for a future business relationship is gone, probably forever. And that sure is “no way to run a railroad!”