Law's oldest lesson.

"You can trust me." Those are strong words, often with deep significance to the person they are spoken to. They evoke feelings of security and confidence. Placing one's trust in another is not an easy thing to do, however, for it creates vulnerability.

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Despite the potential exposure in a relationship based on trust, trust is at the root of many of society's fundamental institutions. We place our trust in our spouses to be faithful and trust our government to protect our interests. So it is in business. For example, when a vendor sells a product on credit, the vendor trusts that the bill will be paid.

While trust may be at the root of many human interactions, it is not a guarantee of performance. People, even those with good intentions at the time, do not always keep their word. When this happens, the person who placed trust in another may find him or herself in a difficult situation.

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Because people do not always keep their word, trust is not enough in the business world. While trust may help to create business and may lead to superior performance in providing a product or service, it does not assist the businessperson when things go wrong. What happens, for example, if a buyer comes to a vendor's place of business, orders product on credit, and, when it's time to pay the bill, refuses to do so? To make matters worse, the buyer might deny ordering any product. The buyer said at the outset that she was interested in the vendor's product, the vendor trusted her and performed the service, but now the vendor is left with an unpaid bill. The vendor's trust seems to have been misplaced.

There is a solution to this problem. While it is quite simple, it is often overlooked or forgotten. Make sure the business transaction is set down in writing and signed by the parties.

This may not always be an easy or convenient thing to do. For example, it may be embarrassing to request a longtime customer or friend to sign a contract, or you may be busy and feel there is no time to write the transaction down. Longtime relationships sometimes break down, however, and working around the clock is futile if at the end of the day you do not get paid.

Putting the business transaction in writing can serve several purposes. It creates certainty. The parties to the transaction are able to refer to the document to establish their obligations, rather than relying on memory alone. This can be particularly useful if the transaction is to be carried out over time and/or involves several steps for completion.

A written document may also provide remedies in case one of the parties fails in their obligations. For example, the parties may place a term in the contract that estimates the loss that one of the parties may suffer due to the non-performance of an obligation by the other party. It may also go on to require the defaulter to pay this loss to the innocent party.

There is a common misperception that verbal agreements are not really contracts. As far as the law is concerned, a verbal contract is just as enforceable as one in writing. A problem with enforcing a verbal contract in court though, is proof. The advantage of a written contract is that if one has to take legal action to enforce a contract, the written contract itself can provide evidence of what the parties intended. With a verbal contract relying solely on trust, it is all too easy for one of the parties, when difficulties arise, to deny agreeing to a matter that is now in dispute. It can often degenerate into a 'he said, she said' situation that calls for a judge to determine who is telling the truth.

While trust is an element in building a successful business, it should not prevent owners from protecting their own interests. This protection can come from simply committing the business transaction to writing.

Michael is a lawyer with Wallace Meschishnick Clackson Zawada in Saskatoon. Questions and comments on this article can be sent to him at [e-mail]