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A Short Post about Long Contracts

 

  • The Employee will receive 10% of net profits realized on all contracts delivered.
  • Final payment will be rendered upon completion of work to the Owner’s satisfaction.
  • Insubordination will be grounds for termination with cause.

Just about anyone who has ever managed a business has run across terms just like those listed above. The terms are simple enough and readily understood. Who hasn’t shaken hands on a deal like this, only to let the lawyers paper it later? And that’s where things, it seems, go horribly, horribly wrong.

But before I continue on this theme, I’m going to take a brief detour back to my distant past as a sixth grader. Our language arts teacher (and why can’t they just call it “English”) asked us to write an instructional essay, giving the reader step-by-step instructions on a process. The process could be anything, but she stressed that it be something simple. The subject of my essay was “How to Make a Peanut Butter & Jelly Sandwich.” (Next to making egg nog and a killer chicken noodle soup, this was and remains one of the very best things I can do in a kitchen.)

My essay was probably about a page and a half long – a veritable doctoral dissertation for a sixth grader. I went through the expected steps: (1) get out two slices of bread, peanut butter and a jar of jelly; (2) place the bread slices on a cutting board; (3) take a knife from the drawer; (4) open the peanut butter jar, etc. all the way through to eating the sandwich and clean up.

I was proud of my essay, meaning it was neat enough to be read and I had turned it in on time and remembered to put my name at the top. My teacher did not return it with a grade. Instead, she had written in red ink on the top of my paper “what if you dropped the knife? Resubmit.”

After learning what “resubmit” meant, I had to add a section stating that “if you drop the knife, pick it up, clean it off, and resume step number ___.” By addressing that simple contingency, my essay got longer. Other contingencies such as running out of a supply or spilling something would have made my essay longer still.

That entire story is the reason behind legal contracts seemingly longer than they have to be. The better drafted contracts address the failed expectations and the things that don’t quite turn out as the principals expected them to be. Equally as important, reasonable people can disagree about key terms and where, besides in the original contract and in a court of law after the expenditure of serious legal fees, would one turn to determine who is right?

Take a look at the questions at the start of this blog post. A well drafted contract, no doubt longer than the business owners hoped it would be, would address:

  • The exact definition of “net profit” and possibly include an example of its calculation.
  • The objective meaning of the subjective word “satisfaction,” most probably by tying it to objective standards such as plans and specifications. (Better yet, the word “satisfaction” should be eliminated from the contract entirely in favor of something more precise.)
  • A list of what constitutes “insubordination” and an understanding of how that could be distinguished from a simply disagreement.

It is the job of the business principal and the attorney to work hand-in-glove to ensure that the contracts are written in plain, understandable English and strike a balance between being thorough and being so impenetrable that no one would ever sign on the dotted line. After all, a 50 page installation contract might cover all possible risks, but who would ever present, let alone sign it?

As a business lawyer, I get that. I understand the need for clarity and, believe it or not, brevity. What I try to explain to my clients, however, is that a well written contract is measured not in length, but in the number of possible disputes it avoids. Most of all, what I hope my clients come to understand is that, if I do my job correctly, the contract may sometimes have to be longer than they envisioned, but then never have to wonder “what happens if I drop the knife?”