I have previously written about the importance of documenting deal terms, getting your documents in order, and reading the fine print. Any lawyer would encourage parties to a contract to formalize agreements in ways that will hold up in Court and be enforceable by a judge. That’s basic business law. Clarity in communications has been long stressed by public relations experts, strategists and lawyers. But far too often, I speak with clients who either did not document their deals, or did not do so in sufficient detail. Not only is this a missed opportunity, but it can prove to be a costly mistake, as well.
In my experience, parties tend to want to comply with the terms of their agreements. Businesspeople understand that their reputations – and their businesses – are built on the value of their word, the performance of their obligations to others, their overall trustworthiness and their reliability. Having a good reputation matters to the business owners or individuals with whom they seek to do business, their own corporate officers and prospective employees, and members of boards of directors of their own company, competing companies and potential collaborators. Identifying the parties’ respective obligations and roles helps everyone better understand what is expected of them and what is left to the other party(ies) to the deal. Lawsuits tend to arise when there is disagreement about what the contract requires – and much of the disagreement stems from uncertainty about what each is obligated to do. It therefore follows that, the more clearly these responsibilities are stated, the higher the likelihood of a successful business relationship (and the lower the litigation risk).
Indeed, in March of this year, the First Circuit Court of Appeals issued an opinion that reinforces the importance of clarity in documenting agreements, and makes a strong case for precision. Simply by beginning with “For want of a comma, we have this case,” the Court sends a message that, if you want to minimize the type of legal wrangling that in this instance gave rise to a $10 million case, you should pay careful your contracts and communications, carefully select your words, and use appropriate punctuation – including the Oxford comma. Any business would be wise to heed this warning. (It is worth noting that many public relations professionals and journalists abide by the Associated Press Stylebook, which does not require a comma in sentences with a simple series. The guide does, however, state that if omitting a comma could lead to confusion or misinterpretation, to proceed in using the comma.)
At a minimum, a business should:
1. Hire an attorney to draft its agreements. You cannot assume that a form found on Google, purchased from a website, or given to you by “a friend in the business” will protect your interests. Whatever the cost of legal services, it is simply less expensive to do it right to begin with than to litigate problems with a deficient, imprecise contract that does not contain key provisions that could help protect your interests and provide remedies for breach that are short of litigation. Ask anyone who has survived litigation. While you can never avoid problems completely (legal issues are simply a cost of doing business), a well-crafted contract can help you manage and minimize your exposure.
2. Consider how they do business, how they communicate, and identify any weaknesses. An important first step in drafting has to do with understanding how both your company and your prospective partner are structured, how you do business, what the most effective means of communication are for you both, along with how problems are resolved. Even the most beautifully crafted contract will prove problematic if it is not consistent with how the parties actually do business, so this is not the time for wishful thinking or expressing how things ought to operate within your company – this is a time to be serious about how things actually work within your walls. These practices should inform the relationship, and should guide the requirements of the contract. Your attorney will be able to recommend provisions to minimize exposure in light of your weaknesses.
3. Think through the business relationship from start to finish. To know what type of contract you will need, and to identify key terms to protect your business in the event of a business divorce, take some time to think about what the relationship will look like from start to finish, including by imagining some typical scenarios and anticipating how they play out. The product of this thought process should look like a mini business plan.
4. Rely on plain English. Good drafting is best guided by the “three Cs,” which stipulate that a contract should be concise, consistent and clear. With few exceptions, contracts should be devoid of Latin and legalese, and should be capable of being read and understood by those without legal training. And, as the First Circuit noted recently, proper grammar and punctuation and careful word choice (particularly with conjunctions) can also go a long way to avoid ambiguity.
5. Consider what happens when the parties no longer see eye to eye. When two or more parties are eager to ink a deal, it is difficult to imagine a time when they will not see the world similarly – and this is the best time to negotiate dispute resolution for when they cannot see eye to eye. Not only is everyone in a mood to compromise, but because nobody knows who is most likely to breach and why, there is an ideal climate for a fair resolution.
While we can never perfectly anticipate all potential issues, following this advice should work to reduce a company’s litigation risk.
The foregoing is provided for informational purposes only, is not an advertisement, does not constitute legal advice or legal opinion, and does not create an attorney-client relationship. The content may not apply to the specific facts or a particular matter. You should not act or rely on any information contained in this article without first seeking the advice of an attorney licensed to practice in your jurisdiction.