Contracts. What can I say? I love them! If you have read my previous posts, this likely does not come as much a surprise. The reason that I love them is, because, as I wrote in my very first blog post, contracts serve as the bridge connecting the law with business. Being that bridge, they serve to define the contours of a business relationship. These contours can and often do change, so a contract needs to have a certain degree of flexibility. Thus, drafting and negotiating them involves far more than two parties talking at opposite ends of along, ornate, and shiny oak table.
Reimagining the scenario I described in my initial piece on this topic, imagine that instead of being given the outlines of a business deal and received a draft from the other side, imagine you are one the setting up the deal. You are in charge of drafting the initial agreement. This is your very first agreement. You know little about the other side other than what information that you can find is publically available. Again, the legal theory underlying contracts will assist, but to a limited extent. You, therefore, seek out what online resources you can find and voila, you come upon a seemingly clean, simple agreement you intend to use as the basis for this agreement. You don’t want to reinvent the wheel, right?
Yes and No. You don’t want to create unnecessary work for yourself, but likewise you also don’t want to write an entire agreement from scratch when the crucial elements of an agreement already exist and can be tailored for use in this deal. You already know how to interpret what I like to call the usual suspects – termination rights/obligations, information security, representations and warranties, and my personal favorite, indemnification. Based on this degree of comfort with the crucial clauses, you feel prepared to tailor this sample agreement for your purposes with this particular deal.
So, what more is there to say? Can’t you just proceed from this point of preparation? You are a lawyer after all. You didn’t go to law school and incur that mountain of debt for no reason.
The answer is no and here is why.
I once again decided to informally survey my fellow in-house contacts on LinkedIn. The results again revealed unexpected results. Sure, there were references to the usual suspects – e.g. do your homework prior to drafting, stay organized, and be consistent, but the more important takeaway were the themes that underscored every response I received. These themes would serve any person about to navigate the contracting process as useful guideposts.
The Template Temptation.
Templates are great in the sense that they can provide you with bits of helpful language that address a variety of common issues in contracts such as indemnification or liability limitations. However, too often a lawyer in a pinch may come across a seemingly perfect template, perhaps one he or she drafted themselves for use in this exact scenario. Do not be fooled. Every contract is different. Every business partner represents a different set of wants and desires. Therefore, relying on a template is often acceptable, but do not assume that it in its entirety can serve as the precise contracting document you need. Language is a powerful thing, particularly in the legal context. Words matter, heck, sometimes the placement of a comma may mean more than the words in between the comma!
Complexity = Complication
All sorts of legal documents end up being filled with quirky linguistics and mind-bending rhetorical acrobatics and more often than not, unnecessarily so. Contracts, in particularly, seem prone to this tendency. Indeed, words carry more meaning in a contract than they do in many other types of legal documents. Unfortunately, many contracts are riddled with fancy words that mean simple things. My question is, if the key to a good contract is for it to be clear, consistent, and contemplate future actions, why complicate matters further with words that no one can understand! Instead, given the absolute requirement for the contract language to be as precise and comprehensive as possible and, of equal importance, to avoid misinterpretation or ambiguity, use simple words, particularly when defining terms and when specifying the who’s, what’s, where’s, and when’s. Contracts carry with them an internal complexity all their own, no need to add to this complexity with verbiage no one can understand.
Above all else, a contract links two parties together in an ongoing business relationship. I call this relationship the linkage. This linkage is not to be taken lightly. What is curious to me is why more lawyers do not do the work of truly understanding the needs of the business. A contract needs to achieve a certain goal and that goal is defined by the business. If you fail to understand what that goal is, how can you expect a contract that you are drafting to achieve that goal? How do you achieve this understanding? Talk to the business people, to other key stakeholders, to the other side to get a sense of what they want out of the deal. This work will help you craft the appropriate language and, at the same time, ensure that the business is protected the way that it needs to be. At the end of the day, both parties need to be satisfied. Establishing the strongest linkage possible is how you do it.