Who Should Sign Your Contract?
A lesson in privity of contract and third party beneficiaries.
Who should sign your contract? It seems like a simple decision on its face, but this is one of the most common questions my creative clients have regarding contracts.
You’ve done the hard work… you’ve found the client and they’ve decided to work with you. You’ve even had that important talk with them about the contract. Now, they’re ready to sign on the dotted line… but instead, the parents’ signature shows up on the returned contract.
Is it that big of a deal? Do you need to send the contract back and ask for the bride and groom’s signatures instead? Negotiating the contract was hard enough the first time…. is it worth it to rock the boat now?
As long as you have all of the facts and can make a discerning decision, then yes, absolutely. In order to be able to make that discerning decision, however, there are two more slightly in-depth areas of contract law that I want you to be aware of, starting today: privity of contract, and third-party beneficiaries. If you ever have clients sign agreements, these are two areas of contract law that are crucial for you to understand as a business owner.
Legal Lesson #1: Privity of Contract
First up, a real example from a client of mine.
Say for example that you are a wedding planner, and you’ve booked the biggest wedding of your career with a great couple. They’ve already signed the contract, and the mother of the bride has gifted them with an unlimited budget for you to make the wedding of their dreams. However, now the bride and the mother of the bride can’t agree on what flowers should be used in the reception. The dispute comes to a head, and you know that the bride only wants white flowers in the reception, but the week before the wedding, the mother of the bride calls you and tells you that since she is the one paying for the wedding, you have to use the pink flowers that she wants. You know the bride and groom signed the contract, but you also know the mother of the bride is paying for the wedding. Who do you have to listen to?
Because you have what’s called “privity of contract” with the couple, they are your clients. “Privity of contract” is just the fancy legal way of saying that your contract is with the person who signed it - here that is the bride and groom. As generous as the mother of the bride’s unlimited budget is, you are not contracted to listen to her. Legally speaking, this means she can’t (successfully) sue you for not doing what she tells you to do.
Wait, but since the mom is the one paying, what if I don’t get paid?
This is an entirely understandable worry to have - unfortunately, this example is pulled directly from a true client experience of mine, and she worried about where her payments would come from. There’s no eloquent way to say it: the couple will still be contractually obligated to uphold their end of the Agreement and pay you for their services. At the end of the day, there will be other ways to recoup your money. What is more important is limiting your liability in the scenario.
In my client’s case, unfortunately, her fears about payment led her to have the MOB sign the contract on her behalf. However, when the MOB and the bride started having “Creative differences” on the wedding, my client found herself in the awkward position none of us envy: having to choose between pleasing the bride (because duh, it’s her wedding), or the MOB, because she signed the contract, and was technically the client. Because my client had the MOB sign the contract and the couple is what American law considers third-party beneficiaries, she opened up her business to liability from two different directions: the couple, AND the MOB.
Legal Lesson #2: Third-Party Beneficiaries
I know the example I just used may be slightly confusing. If the MOB was the one who signed the contract, then why am I talking about potential liability from the couple?
Simply put, the couple is what is called “third-party beneficiaries”, which is another fancy legal term that just means that although the couple did not sign the contract, they “stand to benefit from the main purpose of the agreement”. The purpose of the contract was to secure your wedding planning services for their wedding, and clearly, the wedding is only happening because of/for them.
Practically speaking, this means that if, like my client, you had the MOB sign the contract and things go south, the mother of the bride AND the bride and groom could all sue you, because the contract was created to directly benefit the bride and the groom. Despite the fact that the couple are the only “beneficiaries” of the agreement, the MOB would have a cause of action, because she signed the contract and is your client.
So, who should I have sign my contract?
The first thing I want you to keep in mind is that circumstances will vary case by case. Now that you know the basics about the privity of contract and third-party beneficiaries, you have the tools to make a discerning decision that best suits your case. However, the best business practice is to always have the couple sign your contract. The practical effect of this? You will only have one client to answer to. The legal effect? It’s going to automatically limit your liability on how many people could have viable claims against you.
Like always, make sure and reach out and let me know what random legal questions you have in your business. I’m enjoying creating content based on actual questions, and I hope you find it valuable as well.