Beating the System

Going Into Contractions

The problem: You've signed a contract. You want out. Now what?

Reality check: "There's no sure-fire way to break a contract and get away with it. If there were, trial lawyers like myself would [be out of] a job," says Ron Gaché, a partner in the Palm Beach, Florida, office of Broad and Cassel. But if your company doesn't have enough capital to make it worth suing, you can probably break free from the contract without fear, says Scott E. Friedman, a business lawyer in Buffalo, New York.

What our mystery man did: No sane entrepreneur would admit to breaking a contract. So we found a 38-year-old business owner who agreed to share his insight, if we kept his name and $20 million international transportation firm incognito.

And Mr. X has broken, or revised, a few contracts in his career.Recently, he signed a real estate-related contract with a company (we'll call it Company Y), and all seemed well and good. But then Company Y was purchased by--you know the drill--Company Z. Company Z was a completely different organization, and suddenly the contract was no longer a good deal for Mr. X. Instead of breaking the contract outright, Mr. X renegotiated--a process that took six months and two weeks--and finally came to terms that Company Z could accept.

Recipe for success: Good communication in the foreground, and an ominous-looking law firm in the background, will show your nemesis you're serious. "That's the best one-two punch you can have," says Mr. X, who adds that you should also invite a third guest to the party: a neutral arbitrator. After six months of bickering, Mr. X found a business associate who knew the CEO of Company Z, and that arbitrator brought the two together for discussions. A new contract was drawn up two weeks later."That common link is important," stresses Mr. X. Without a mutually respected arbitrator, you're just a name and phone number with a checkbook.

Bottom-line advice: "Many entrepreneurs try to cut costs by finding an inexpensive lawyer," says Mr. X. "They don't realize that can be the most expensive mistake they'll ever make." Mr. X uses a smaller-name law firm for his routine tasks but finds more specialized attorneys for his more complicated situations. "It's a lot like hiring an employee. You have to ask yourself, `Am I hiring the person best suited for this task?' "

Contact Sources

Adams Keegan, (800) 621-1308, http://www.adamskeegan.com

American Association of Home-Based Businesses, P.O. Box 10023, Rockville, MD 20849, http://www.aahbb.org

Broad and Cassel, 400 Australian Ave., #500, West Palm Beach, FL 33401, (561) 832-3300

Bryan Cave LLP, 700 13th St. N.W., #700, Washington, DC 20005, (202) 508-6086

Campbell Alliance Group Inc., (888) 297-2001, sherry_mclamb@campbellalliance.com

Digital Now, steve@digitalnow.com

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Geoff Williams has written for numerous publications, including Entrepreneur, Consumer Reports, LIFE and Entertainment Weekly. He also is the author of Living Well with Bad Credit.

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This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Beating the System.

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