NET(net), Inc.


Mutuality, or, What’s Good for the Goose is Good for the Gander by jigordon
May 27, 2009, 9:32 am
Filed under: contract management, contract terms, risk

In several recent deals I’ve had the very unpleasant tasks of redlining virtually every section of the agreement because I felt that the terms weren’t mutual.  In other words, the language was completely one-sided so that only the document drafter received any benefits under the agreement.  If you’ve never encountered this scenario, these documents are nightmares to go through.  You never really relax and feel like the agreement was written to be fair to both sides, so you start to get jumpy about every little misplaced comma.

Mutuality is a key concern for me.  If a contract is supposed to be an apportionment of risk – a meeting of the minds as well – how would it be interpreted in the event that we had some sort of disagreement?  Would the courts find that we actually had an agreement at all?  Or, using the severability clause, would the court excise much of the agreement and leave only a few basic operable paragraphs?  However you might imagine it playing out, I simply don’t like the feeling that an agreement is all obligation for one side, and all benefits for the other.  So, in almost every clause, I look to make things mutual as much as I can.

This is especially important (and unfortunately starting to be more commonly seen) for Limitation of Liability language.  Make absolutely sure that your party is protected by LoL language.  There are, of course, exclusions to LoL, and those too should apply to both parties.  But do not let an agreement get signed that only caps the liability of the other party. (This happens to be one of the few areas where I’ll use every ounce of control I have to block a deal.)

On the flip side, each parties obligations (and thus, warranties) are at least slightly (and sometimes significantly) different.  Here, mutuality in spirit is what I’m looking for – not an exact duplication in language or deed.  For example a software provider might warrant that their product is four-digit-year compliant (yes, I still ask for this).  But the customer doesn’t have any control over this.  So I wouldn’t want it to be a mutual warranty.  However, the customer can warrant that any information provided to the vendor is accurate and reliable.

Overall, I just watch for balance.  When I don’t see it, I add it.  When I don’t ever feel it, I warn my business owner(s).  When I don’t get it, I suggest looking elsewhere.  Everyone should take this opportunity to review your template agreements.  Are they balanced?  Why wouldn’t they be?  I haven’t said this yet in this forum, but it seems to be turning into my favorite phrase of 2009:  “In negotiations, you can screw someone else.  Once.”  The cost for finding new customers, however, significantly outweighs the cost of keeping old ones.  Write your deals for the long-run (such as by being mutual) and you’ll both be happier.

Advertisements

1 Comment so far
Leave a comment

When I was in-house at a software company and received a too-unbalanced draft, I’d sometimes flat-out refuse even to review it (after getting the OK from the business people of course).

Conversely, the fairness and thoughtfulness of our standard software license- and maintenance agreement became <a href=”http://www.firstdrafter.com/2008/08/balanced-contract-forms/”>a non-trivial selling point</a> for us.

Comment by D. C. Toedt




Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s



%d bloggers like this: