Business Musings: Contract Basics (Contracts/Dealbreakers)

As I mentioned last week, I decided to revise my Dealbreakers nonfiction book. As I started making notes for the revision, I realized the topic of deals, contracts, and publishing legalities has gotten so complex, I’ll probably get several books out of it.

Wrapping my arms around a topic this vast is intimidating enough. Often, I will focus on current events as my hook.

But I realized that I needed to do something right up front: I need to discuss the importance of contracts.

I know to some of you that sounds silly. Traditionally published writers expect to get a contract from their publisher. Hybrid writers expect the same thing, when they have a publisher other than themselves.

Indie writers often have no idea what contracts are or why they’re necessary.

In fact, all three groups rarely think about contracts at all.

Before we get to the meat of this topic, however, I need to do two things. I need to give you the standard disclaimer, and I need to let you know where I’m coming from.

Disclaimer: I am not a lawyer. Nothing in this blog or on this website should be take for legal advice. Period.

Where I’m coming from: If you haven’t done so, go to “Introductory Remarks” and look at the definition of terms. That will tell you the perspective of this blog post. If you try to comment about something that makes it clear you haven’t looked at those terms, I will delete your comment.

Okay. That’s done.

Over the years, I have become fascinated with writers’ attitudes towards contracts. Writers are so very cavalier about them. More than fifteen years ago, a former editor of mine (for a major traditional publishing house that has since vanished) told me that most writers she worked with looked at their 25-page traditional publishing contract like this:

The writer closely examined the lines covering the advance, and the advance’s payout schedule. The writer eyeballed the royalty rates, and the writer glanced at the deadlines.

That was it. Out of 25 pages, the writer looked at very little else.

I did not believe my editor. I really believed most writers were not that stupid.

I’m here to tell you now: she was right. Most writers are that stupid. Most writers pay no attention to their publishing contracts at all until some term bites them in the ass. Then the writer tries to figure out how to get out of it, not realizing that they got themselves into it by signing the contract without examining it.

Hybrid writers are learning the truth of that one. Many hybrid writers want to reprint their backlist. In the early days of epublishing, a lot of hybrid writers simply put their backlist titles up as ebooks, only to receive a cease-and-desist notice from the book’s traditional publisher. Writers stopped uploading without permission pretty quickly as the word got out that traditional publishers didn’t like that.

It helped that traditional publishers started epubbing their own backlists.

Indie writers have yet another problem with contracts. Indie writers believe they don’t need any. I’m sure many indie writers have already left this blog post, because they think it doesn’t apply to them.

Hey! Indie Writers! You’ll benefit more than any other group from this post!

There. Do you think I got their attention?

Writers in general—traditional, hybrid, and indie—do not respect their contracts. Writers don’t understand contracts, and rather than learning what a contract is and why it exists, writers let “their people” handle the contracts.

For generations now, “their people” are usually their agent and the employees of their agent, which, as you will see in future posts, is a truly terrible idea. If you want “people” to handle your contracts for you, hire people for whom contracts are a specialty. Namely, a literary lawyer.

But let’s talk about contracts themselves, shall we? Most writers expect someone else to generate a contract. Most writers want their traditional publisher or their agent or their service provider or their mortgage broker or whomever they’re in business with to provide them with a contract. Most writers have no clue that they can generate their own contracts.

Yes, you, traditional writers! You can go to your publisher with your own contract in hand. I personally know several writers who do this. That puts the contract negotiation phase on equal footing. The writer has their 10-page contract; the publisher has their 25-page contract.

The document the two end up with is neither of those contracts. It’s something unique to that particular negotiation, and probably won’t be replicated in the writer’s next negotiation with a different publisher.

There, traditional writers, did I just blow your minds? Because it certainly blew mine when I started editing over 25 years ago and some writers provided me with their standard contracts for short fiction. I didn’t know that was possible, because, at the time, I did not understand contracts or contract law.

Indie writers, I know many of you are wondering why you need a contract at all. Technically, in many states in the U.S., you don’t. But in some states, you do.

There are other, more practical reasons to have a contract, and I will get to those after I define what a contract is.

A contract is a legally binding agreement between two or more parties.

As with anything in the law, however, that simple statement above isn’t the whole story. In order for a contract to be valid, it must have all of the following elements.

1. Offer
2. Acceptance
3. Valid (legal and valuable) consideration
4. The parties must intend to enter an agreement with each other
5. The parties must have the legal capacity to act in this matter
6. The parties must give genuine consent to the terms
7. The agreement must be legal

I’m going to start with the simplest things to explain, and then I’ll get to the harder ones.

With that in mind, let’s start with #7:

The agreement must be legal

You and I can enter an agreement to commit a crime. However, that agreement, even if it fulfills points 1-6 above, is not valid. There are a million ways to enter into an “illegally formed” contract, and most of them do not apply to publishing, so I am going to skip them. If you want to see a list of possible items that make an agreement illegal, go here:

#7 generally does not apply to publishing contracts, but the rest of the list does. So let’s move to #5

The parties must have the legal capacity to act in this matter.

Legal capacity has a lot of definitions, and we’re not going to get into most of them. Generally speaking, the person who enters into a contractual agreement must be an adult, in full command of their mental faculties, and able to understand what they’re signing.

If one of the parties is a corporation, then the person who enters the agreement for the corporation has to have the power within the corporation to make binding legal agreements.

This one little fact is why agents cannot sign a contract for their writers, unless the writers give the agents power to do so under the law, with another agreement called Power of Attorney. Even then, the ability to sign such documents would have to be spelled out in the Power of Attorney agreement.

All parties to a contract need to have the legal ability to represent whatever is in that contract. For example, I cannot sign a valid contract selling your novel to a major publisher. I do not control the rights to your novel. I also cannot scan and upload your book to, say, Amazon. When you upload a book to Kindle, you warrant—by agreeing to the terms of service (a contract)— that the book is yours or that you control the copyright to that book. Since I do not control your copyright, I would not have the legal capacity to enter into an agreement for that book.

Speaking of terms of service (which is a contract, by the way), let’s go to #6:

The parties must give genuine consent to the terms

Have you ever read through a terms of service (TOS) agreement? No? And yet you’ve clicked accept? You have to go through pages and pages of text, plus an offer to have the TOS sent to you via email (or regular mail), before you can click accept. Back in the old days (like ten years ago), it was easier to hit accept on a TOS. The very ease back then made it possible for attorneys to argue that there was no “genuine consent.” (This kind of thing fell under consumer protection laws, usually.)

That’s why TOS have become impossible to ignore. You have to willfully not read them, and go through a bunch of notices before you click accept. Then it’s your own damn fault if you agreed to something you didn’t read.

Genuine consent in most written contracts comes in the form of a signature with a date attached. Sometimes that signature needs to be witnessed and sometimes it needs to be notarized to show its validity.

But on some contracts—particularly verbal contracts—all it takes is a handshake to give genuine consent. Each state’s laws differ on this point. Some states do not honor verbal agreements. Others do. If one of the parties in your contract is from one of those states, then you could be agreeing to something you think you’ve mentioned casually over the phone.

This one fact alone is why I do not conduct telephone negotiations with anyone on any project for any reason.

People who want to negotiate with me must do so by letter or, these days, by email. I print those emails and keep them as work product for any agreement that we come up with, or don’t come up with, as the case may be.

Now we’re getting to the parts of a contract where I’m feeling constrained by the simplicity of this blog. For every sentence I write, I have paragraphs of “but if this happens, then that could happen” that I could add to this document. I’m not going to.

If you don’t understand what I’m writing here, there are many, many, many websites that can help you understand the essentials of contracts, probably better than I ever could. Google contract basics.

But…moving on…and advancing into serious wiggle territory, I present #4:

The parties must intend to enter an agreement with each other

Intent in this instance is really difficult to explain. When you upload a book to ebook site, you are intentionally entering into an agreement with that site. The TOS defines the legal relationship you have. Most writers don’t think about that intention, but it exists.

It also exists for you readers. When you pay money for an ebook, you’re licensing the ebook to use on your ereader. You are renting that book. You have entered an agreement with Amazon or Barnes & Noble to rent that book, and those entities may revoke your right to rent that book for reasons listed on their websites. You signaled your intent to rent that book by your actions, not necessarily by clicking agree to a TOS or by signing a document.

This is a very complicated part of the law, and of course, it varies state to state, and sometimes from community to community. If you want to know more, then do some digging on your own.

For our purposes, however, you will be dealing with a written document. You would not be negotiating a document to work with someone if you did not intend to work with them. Therefore, this seems like a small point.

Trust me, it isn’t. And it has become more confusing for indies than it has for traditionally published writers, because of things like Terms of Service.

Now that I’ve muddied the waters with the complex legal wiggle-waggles, let’s go to the most basic part of contracts.

Every single contract needs #1: An Offer. That offer must be #2: Accepted. Tied to that offer is #3: Consideration.

I know most of you don’t know what consideration is, so let’s explain it first.

Consideration

What makes a contract special is that it is binding on both parties. In return for making the agreement, each party needs to get something. That something has to have value to both parties.

Nolo.com’s article on contract basics gives a very succinct definition of consideration:

Each party has to promise or provide something of value to the other.

In many, many cases, consideration has a monetary value. But not in all cases. Essentially, consideration boils down to the very reason each party enters the contract.

Writer A wants to have a novel published.

Publisher X wants to publish that novel.

Writer A and Publisher X decide to exchange services. Writer A writes the book; Publisher X publishes the book. Even with no cash changing hands, both parties have received consideration—in the form of work, time, expenditure, and so on. Both parties have gotten something they value out of the agreement.

Nolo.com has a great article on consideration. I suggest you read it.

We end with the meat of a contract.

A contract does not exist without #1 and #2.

Offer and Acceptance

I listed them separately. Many descriptions of contracts list them together. Because a contract does not exist without both.

I can make you an offer for your book. If you do not accept my offer, we do not have a contract.

It’s that simple.

However, once the offer is accepted, we have a valid contract. Some people mistakenly believe the contract is not valid unless money changes hands. Not true.

The contract becomes valid and binding once the agreement is made.

Let me give you a real world example that, fortunately for the other party involved, I did not go to court over.

A representative of a brand new science fiction convention contacted me via email, and offered to pay all my expenses in exchange for my appearance at that particular science fiction convention.

I agreed also via email, and printed out the letter, along with my reply.

These email letters, along with email acceptances, are a common way to do business with a science fiction convention. Those email letters are a contract.

Offer made. Offer accepted. Consideration would happen at the convention itself—for both parties.

A short time later, I received a form email telling me that the organizers had overbooked the convention and they were no longer going to pay any of my expenses, even though they still wanted me to appear at the convention.

I had several choices. They had breached a contract. Our email exchange would serve as the binding contract.

I could have shown up at the convention and insisted on enforcement. I had many other options as well, and believe me, I thought about them. This was extremely unprofessional behavior on the part of the organizers, and it called into question habits of a lifetime for those of us who’ve appeared at conventions.

I was not the only science fiction professional who received the form email. Several other science fiction professionals did as well. We discussed taking action. Instead, the only action we took was to inform the other professionals who had not received the form about the breach of contract. If those professionals had shown up at the convention, they might not have had their expenses paid.

The professionals needed to know that before they made travel plans.

Nothing happened, because the convention imploded shortly thereafter and will not be held. So there will be no appearances and no all-expenses-paid guests. Which is probably good for the organizers, since they had several existing contracts that they were no longer planning to honor.

Most of us think of contracts as those 25-page documents I mentioned above. But we deal with contracts each and every day. Some are implied contracts, and others are actual paper documents. That email exchange was a contract.

I do not have a written document with the woman who cleans my house. She shows up once a week at a designated time, and I pay her every single week. We made that agreement verbally. We have a contract for cleaning, and it is binding.

Contracts are extremely important. They define the relationship between the parties. Written contracts are the best, because each party can examine the terms, think them over, and decide whether or not those terms are acceptable.

You and I might discuss a proposed business plan over the phone. I might think we decided to have you do all the publishing work, from designing the covers of a book to writing cover copy, and you might think we decided that you would write the book and I would publish it. A simple misunderstanding that could happen in conversation would be solved if we had a written agreement.

With a written document, you can examine the terms and see if they’re feasible. But you must examine those terms before you accept the offer. Once you’ve accepted, the contract becomes binding.

It’s easier to take legal action over a broken contract if that contract is in writing. Taking legal action does not mean you have to go to court. You can have an attorney contact the other party, and let them know they are in breach of the contract. That’s very easy to do when the terms are spelled out.

I can’t tell you how many times I’ve taken part of a publishing contract and used that section to show the publisher that they were in breach of the contract.

Once someone is in breach, by the way, they usually have the right to cure. Meaning, if they do something wrong, they have the right to fix that problem within a reasonable amount of time.

I keep catching one of my traditional publishers in a breach, and the bastards keep curing. I want them to breach the contract completely so that I can get my book back. They haven’t done it yet. (Sigh.)

Three last points about contracts.

First, both parties have a stake in the contract. You don’t have to sign something as is. And, in fact, you shouldn’t. You should negotiate. Most writers never do that. I know, I know. You don’t know how to negotiate. I have a book on that called How To Negotiate Anything. If you don’t want to get the book, look at my blog posts on the topic, starting with this post.

Second, here’s an important thing to remember about contracts, which I came across on BusinessDictionary.com:

However, while all parties may expect a fair benefit from the contract (otherwise courts may set it aside as inequitable) it does not follow that each party will benefit to an equal extent.

Traditional publishing has made this one little fact the gold standard of their contracts. Yep, writer and publisher benefit from a traditional publishing contract. Who benefits more these days? The publisher. And I aim to stop that with this series of blogs.

I can’t stop publishers from asking for more than they deserve. I can, however, dream that I can stop you from giving them more than they deserve.

That’s where the Dealbreakers part of this will come in, down the road.

Finally (third), indie writers, you need to define your relationships—all of your relationships, from your relationship with your cover designer to your copy editor—with contracts. You’ll probably have to generate those contracts yourself. I’m looking for a good resource book or website right now for that, and if I find it, I will list it here.

But for the time being, write up an agreement in plain English, listing an offer, the acceptance, and the consideration. You can always change the agreement (with the approval of both parties) down the road. But cover your asses.

Because, really, covering your ass is what a contract is all about.

I’m doing a long series again. This one is on contracts and dealmaking/breaking. It will include clauses to watch out for, information on agents, how to hire an attorney, and more.

I will be digging into bad contracts and typical terms of other contracts. If you have something that you believe will help, see the introduction blog for more information on how to get it to me.

As I mentioned in that blog, this topic discourages the hell out of me, because I see so many writers sign away their life’s work. I’d like to stop that, and the only way I know how to stop it is to blog about it. But honestly, it puts me in a dark place.

So if you get a benefit from this blog or this series, please consider supporting it. You can support it with a cash donation or by forwarding it to writers.

Thanks so much.

Click paypal.me/kristinekathrynrusch to go to PayPal.

“Business Musings: The Importance of Contracts,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by Canstock Photo/tombaky.