Thursday, April 19, 2007

The Contract

The image to the left is of a pencil sketch by Paul Wylie that hangs in my home. It isn't the best quality of photography, I have to admit, but I never claimed to be a photographer. You can't quite make it out, but behind the two gentlemen shaking hands is a herd of cattle. What is taking place here is a sale. The handshake is the contract.
It seems like in today's business world you need a contract for everything. I'm not talking about a two page agreement that outlines the basic points between the two parties, I'm talking about a ream of paper to replace a worn piece of carpet! It is ridiculous.
The typical process is basically that the principles agree orally to do something. Then one of them directs his attorneys to draw up a contract. The contract is then sent to the other party who asks his lawyer to review it and suggest changes that might be necessary. There are always changes (it's called job security and milking the deal). The revised contract is then returned to the first party whose lawyer reviews the changes and revises the changes and sends it back. The process usually requires several iterations and the contract becomes lengthier with each revision. The sad thing is, it's only marginally useful when completed. Ultimately, if one of the parties wants out of the contract, they will hire a bunch of lawyers who will find a way to get out of it.
You occasionally still see a contract similar to the picture above in cattle country, although they are becoming less common. It is amazing to me how many 100's of thousands of dollars are spent through verbal contracts over the phone. It typically goes something like this --
"Jim, I need about 2000 head of 500 lb. yearlings to put on wheat pasture. Can you get them put together for me? Ship them to my place out near San Jon, New Mexico."
"OK. I should be able to get them together by the end of the week. Plan on taking delivery around 7:00 am on Saturday."
The deal is done. It was about a $1.2 million deal for cattle "sight unseen". There were no guarantees, no inspections and no questions about whether there was money to pay for them. It was just each party's word over the telephone.
It's nice to be associated with an industry whose members have enough integrity that you can comfortably do business this way. Yes, occasionally someone gets burned, but it's rare.
"Simply let your 'Yes' be 'Yes,' and your 'No,' 'No'.... Matt. 5:37

1 comment:

Incognito said...

How nice! Where you can honor a verbal agreement!! Too bad it's just in that sector of the business world.