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The Tao of Contracting by jigordon
May 12, 2009, 9:32 am
Filed under: contract format, contract terms, negotiation

In last weeks’ post, I stated that contracts don’t instill trust.  Today, FirstDrafter (nom de plume of licensinghandbook reader D.C. Toedt) has a post where he disagrees with Ken Adams and says that contract terms need explanation as necessary.  It should come as no surprise that I agree with Ken, but not based on Ken’s reasoning.

In Ken’s world, efficiency and breviety (with clarity of thought) are key.  His opinion is that contract terms shouldn’t have explanations because a) it’s restating what was already said, b) confusion might result from the restatement.  Ken clarifies that examples may be useful to show how a particular clause would play out (such as a pricing calculation) and that explanations might be warranted in specific situations where there is evidence to suggest that a particular set of “magic words” (contract phrasing you think necessary to get a ruling in your favor in the event of a dispute) might not be as magic as you believed.

D.C. seems to consider things from another perspective.  Say, for example, we contract, including explanations as to our logic for selecting the particulars of the transaction, and then we have a disagreement.  We go back to the document to negotiate a settlement (or we go to court seeing judicial review).  In D.C.’s process, the reviewers (us or the judge) can read the logic, using it to help them decode the language and find a solution.  However, I’m hard pressed to think of a situation where that would lead to real progress.  In my mind, the logic is part of the contract language itself (not the GemaraTalmudic commentary on the language) – so if the explanation explained the reason for the “how”, the “how” is still the process which must be followed.  So even without the explanation, the “how” is still left undisturbed after judicial review.  This goes back to Ken’s desire for contract efficiency – restating simply leads us to the same conclusion we would’ve had without the restatement.

I’ve been giving this a lot of thought recently, as I’ve felt quite torn over strict contract language and the need to try to write in Plain English™.  Interestingly enough, comments in Ken’s post also suggest the need for explanations in consumer contracts.  But I think it’s worth asking whether we can take Ken’s desire for simplicity and efficiency to the next level and write Plain English™ sentences throughout an agreement – eliminating jargon, Latin, magic words and other staples of contract drafting.  (This is central to Ken’s entire specialty.  The MSCD is his effort to help us write better agreements.  If you draft/redline agreements but don’t own it, you should.  By his own admission, it’s not perfect – but it’s a long way down the path towards perfection.)

Since I don’t have Ken’s laser-like focus on the language itself, I’ve been pondering whether a non-binding contractual sidebar would help the parties understand the intent behind the language.  While there are perhaps good reasons to have explanations in contract terms – my conclusion ends up more in direct opposition to D.C.’s supposition that a party might later decide that they don’t like or want to do something in the contract the way it was contracted:

Tough luck.

A contract is NOT a guideline document or a suggested course of action.  The essence (the tao) of a contract is that it’s a set of rules that both parties agree to follow.  If you don’t want to be told how to do something, don’t sign the agreement.  If you think that there might be improved methodologies in the future, don’t decide on the how – focus on the end result instead.  But if you do, in fact, agree that we are going to act in a particular way, at a particular time, to achieve a particular result, for particular consideration, for a particular duration … and then you decide to unilaterally choose a course of action that countermands one of our agreed upon particulars … you should expect me to react in an unpleasant manner. If you don’t understand the terms (and/or can’t figure out how to use the “what if” game to see how the language would play out in real life), don’t sign the agreement.

Granted, D.C. is correct that it takes people to carry out the instructions and judges to interpret the disagreements.  But they don’t need the why, either.  If the contract particulars are problematic in any way, shape or form, there is a process to change it: the contract amendment.  Until then, however, the only why you need to remember is that “that’s what was agreed at the time the contract was signed.”  And while this sounds like a question and answer session with a two-year-old, that’s really the only answer that applies.


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