Repercussions of not having a formal written contract – Lessons from Guy Sebastian’s case
The value of having a formal written contract outlining the terms and conditions of a deal can best be seen in Guy Sebastian’s case, which is currently attracting much media attention.
Guy Sebastian has stated that his former Manager, Titus Day, drafted a contract to sign him on as being his client but Sebastian claims to have not read the contract at the time on account of lacking “confidence in reading a contract”. Although the contract was never executed, Sebastian and Day continued to work together in a formal relationship whereby Sebastian claims that Day handled almost everything including managing his income payments. The amount of commission that Day was to get from Sebastian’s earnings is in dispute and is complicated further by allegations of embezzlement and larceny on the part of Day. Sebastian says that Day fraudulently embezzled close to $900,000 from his earnings.
All the allegations could potentially have been avoided from the start, if Guy Sebastian and Day had entered into a formal written contract that clearly outlined the terms and conditions of their relationship.
So, what are the benefits of a written contract and why is a written contract better than a verbal one?
- Acts as a Proof
A written contract provides proof of the terms and conditions that are agreed to by the parties. At the time of the commencement of their work together, Sebastian and Day may not have realised the importance for entering into a written contract given the likely closeness of their relationship. After things turned sour, both would likely have hoped that they had a written contract in place as proof to justify the claims they now make.
- Helps provide clarity and avoid misunderstandings
Having a written contract helps each party have a clear understanding of the terms and conditions they have agreed to. This way if any party had an alternate view on their obligations arising under the contract, having a read of the terms would remind them of their obligations and help clarify any misunderstanding. In Sebastian’s case, the issue of how much commission Day was to take and how his income was to be managed could have been clearly outlined in written terms, helping to avoid any conflict between them.
- Provides security and peace of mind
A written contract sets out the terms and conditions and in essence outlines the boundaries of the overall contractual relationship. If things go sour, it gives both parties the peace of mind that they can rely on enforcing the terms and conditions of the contract if there were to be a possible breach. In hindsight, both Sebastian and Day would have benefitted from a clear written agreement to afford them security and peace of mind
- Helps avoid having expensive litigation proceedings
A written contract would have acted as a guide and provided a reference to what the parties have agreed to and helped determine who is in breach. As such, it would have been less likely for a case involving breach of contract to end up in court. Further, even if it did end up in court, it would not have dragged out the litigation proceedings as much as it has had to in Sebastian’s case on account of having to prove the terms of a verbal contract.
- Can include confidentiality and non-disclosure provisions
Having a written contract, ideally drafted and reviewed by lawyers for both parties, can also allow for adding in confidentiality and non-disclosure provisions in the contract. These can help guard any confidential and sensitive information shared amongst the parties, even when the contractual relationship comes to an end. The value of such clauses can best be seen in Sebastian’s case where a lot of sensitive and confidential information is now being openly shared by each in the public domain.
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