The $14,000 Lesson

A business owner did $14,000 worth of work for a nonprofit. After the work was completed, the nonprofit offered $8,000. No dispute about quality—they simply decided to pay less. The business owner came to me asking what to do.

I reviewed the documentation. The terms clearly said $14,000 for the work performed. But here was the problem: pursuing that claim in court would cost $15,000 to $20,000 in legal fees. In the U.S., you can only recover attorney’s fees if the contract specifically provides for it or a statute allows it. This contract had no such provision.

The math was brutal. Spend $20,000 to recover $14,000, and you’re out $6,000. Accept the $8,000 offer, and you’re ahead $8,000 compared to litigating.

Why Suing Often Costs More Than the Dispute

Most business owners assume that being legally right means they should sue. But litigation is expensive, slow, and uncertain. Without an attorney’s fees provision in your contract, winning a lawsuit can still mean losing money. That realization hit this CEO hard—and it’s one I see business owners confront regularly.

The Contract Provisions That Actually Protect You

The fix is straightforward: build the right terms into your contracts before problems arise. Every business contract should address scope of work, payment terms, dispute resolution, and—critically—who pays attorney’s fees if things go sideways. A well-drafted contract doesn’t just document the deal; it makes the deal enforceable in a way that’s economically rational.

What Counts as a Contract

A contract is any agreement where both parties exchange something of value—what lawyers call consideration. It doesn’t have to be a formal document. Emails, invoices, even text messages can serve as evidence. But the more clearly the terms are documented, the stronger your position if the other side doesn’t perform.

Video Transcript

Initial Deal and the $14,000 Agreement

A few years ago, a business owner came to me with a problem. He said, “We had an agreement with a nonprofit to do work for them. And in exchange for that work, they would pay us $14,000. But after we did the work, everything was done, and the nonprofit came back and said, ‘How about we pay you $8,000?’”

Pushback and Refusal to Honor the Original Amount

And the CEO said, “Well, I am not sure I understand. Well, was there something wrong?” The nonprofit said, “No.” And the CEO said, “Well, why wouldn’t you pay $14,000? That is what we agreed to. What are you talking about?” And the nonprofit just said, “We are willing to pay you eight. Is that sufficient?” And the CEO said, “No, we need payment to $14,000.”

The nonprofit said, “Well, if you want to get paid, you will need to accept $8,000.” The CEO said, “Well, that wasn’t our deal.” And they said, “Well, that is the deal now. If you want the money, you need to accept $8,000.” The CEO said, “Well, that is not acceptable. We need the $14,000.” And the nonprofit said, “Well, then you are not going to get paid.”

Was There a Valid Contract?

So the CEO came to me and said, “What can we do about this?” And I said, “Well, can I have a copy of the contract?” He said, “Well, we kind of had a statement that we wrote up, kind of a statement of work, but there wasn’t necessarily a contract.” I said, “Well, send me whatever you have because you had a deal. So that legally is a contract. What we need to see is what are the terms.”

Well, I looked at it. It very clearly said, “$14,000 in exchange for this work.” I said, “Well, here is the problem. You are owed $14,000. You did your part. They didn’t do their part. They owe you $14,000. But in order to hire me, to sue them, and go after that money, you are going to pay a lot more than what is at stake here.”

I said, “You would be better off accepting a payment of $8,000 than to sue them. And here is the problem. You would like to recover attorney’s fees, but in the United States, you can only recover attorney’s fees if a contract says you have a right to do it or if there is a special statute that allows you to do it.”

So I said, “You know, you could spend $15,000 to $20,000 in attorney’s fees when, but then you are only entitled to that $14,000 that you originally were entitled to.” And so let’s add up the money. Let’s say you spend $20,000 in legal fees, and now you get $14,000. You are out $6,000. Whereas, if you accept their $8,000 offer, you are ahead $8,000 compared to where you are now.

Key Takeaway: Protecting Yourself With the Right Terms

Now, sure, you are entitled to $14,000, but if you have to go to court to get that money and have a judge rule that it is in your favor, it is going to cost you some legal fees. And so it was at that moment that the CEO realized it is really important to have an attorney put together a contract with provisions that protect the CEO.

Understanding Contracts for Your Business

Why Provisions Matter

So that is what we are talking about today. Contracts. How do we put together the provisions that are important to you? And part of that is just figuring out what are those. Now, of course, you can hire an attorney. And if that attorney sits down and talks with you about the deal and thinks about what pieces should be there, often the attorney will identify all these important provisions for you. But my hope for today is that you don’t have to rely on the perfection of your business attorney and that you will be able to identify for yourself what provisions should be there. You will understand at the end of this section: What is a contract, and how do I enforce it? And what are the different types of contracts?

Types and Structure of Contracts

So we are going to talk today about, What is a contract? What are the different types of contracts? And as we go through those, we will talk about different provisions. These are just contract clauses, sometimes called Terms, that basically you are saying, “Hey, we should have that in there. We should cover that subject.”

Basic Definition and Example

So a contract is just an agreement where both parties agree to do something or give up something. For example, I might say, “Hey, I will pay you a hundred dollars to come paint my house.” And you say, “Agreed.” Well, I am giving up something. A hundred dollars. You are giving up something. The time it takes to come paint my house. Do we have a contract there? Yes.

Missing Terms and How Courts Handle Them

Now you might say, “But wait a second, there are all sorts of terms missing. We didn’t figure out what day, what color of paint to use, there is no agreement on how long it will take, and what does paint the house mean, inside or outside?” Well, courts have wrestled with these issues and basically said, “As long as a reasonable person could imply those terms, those terms will be implied by a court if there is litigation.

Understanding Price and Implied Terms

So as long as there is a price, usually. Now you might say, “Well, are there circumstances when there doesn’t have to be a price?” Well, if the price is commonly known, like if the price is listed in newspapers, like it is with commodities, or if the price is generally understood, like when buying and selling a vehicle, it is probably around the blue book value.

But that is up to a judge to figure out what are the reasonable terms that should be part of a deal. So, what is a contract? It is when both parties are giving up something. And then, you might say, “Well, does it have to be in writing?” No. Generally speaking, oral or spoken agreements are totally enforceable.

Exceptions: Statute of Frauds

There are a few exceptions. These are the exceptions written in a statute. It is called the Statute of Frauds. And that statute of frauds says, “You know what? For real estate transactions, for contracts for more than a year, for certain surety-type agreements where one party’s agreeing to be personally responsible for another party, for certain types of arrangements, it does have to be in writing.” And there are even some exceptions to that. We are not going to get into that today. For most business contracts, an oral agreement is sufficient. So of course, if you have something more than oral, like you have it in writing, that is even better.

Forms of Written Agreements

Now, the writing might be an email. It might be on the back of a napkin. It might be an invoice, a term sheet, or some other informal communication. It really doesn’t matter. The agreement is the exchange between the parties. And then whether it is by email, or paper, or recorded, or on video, or whatever that evidence is, that is evidence of the agreement. It is not the actual agreement itself. So even though we might talk about a legal document and we call it an agreement or we call it a contract, the agreement is actually the exchange that was approved by both parties, which is often reflected in a document. All right, so we don’t have to get too technical about this, but I want to make sure you understand what is a contract.

What Counts as Consideration

There is one other issue that comes up with what is a contract. What if I say to you, “I will give you a brand new bike on Christmas.” And you say, “Agreed.” Is that a contract? No, because you didn’t give up anything. It was a one-way deal. I gave up a bike, but that is a promise of a gift. It is not a contract. So keep in mind you always have both parties giving up something.

The legal term for that is Consideration. In other words, both sides must have given up something, and that thing that is being given up legally, we call that Consideration. You don’t need to remember that term, but it is a legal term that is out there that lawyers will use when figuring out: Was there actually a contract in play? So, what I would think about is, “Was there an offer? Did the other side accept that offer? And did it involve both parties giving up something?”