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Why Bother With Contracts? Part 3

October 12, 2018

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Why Bother With Contracts?

May 4, 2018

 

Earlier this week I had an exchange which, in various guises, I’ve encountered lots of times before.  The views expressed to me (by an intelligent and articulate person whom I’ve quickly come to respect) went something like this:

 

  • I know my home-made one-page contract may not cut the mustard, legally speaking, but I understand it, it’s never let me down before, and look – it’s only one page!

  • “Proper” contracts aren’t really worth the effort – if things go wrong, it’s too expensive, difficult and time-consuming to go to court, so what’s the point in having a “proper” contract that I’ll never enforce?

  • My operation’s just a small one and I’m not dealing with the sort of big people who rip you off, so I don’t need as much protection anyway.

 

Let me start by saying that I totally empathise with this kind of viewpoint.

 

Nobody wants to be reading through pages and pages of impenetrable legalese where they understand maybe one word in three – it’s a demoralising waste of time.

 

Full-blown litigation is almost always very expensive, stressful and draining, and definitely not a step most people take lightly – if they take it at all.

 

When you’re a smaller organisation dealing with similarly small outfits, without lots of suits and internal rules getting in the way, it’s much easier to do business based on personal relationships and understandings.

 

It’s also very easy to take a cynical view of the lawyers’ role in all this – you have to pay them to write something that only they can understand, which doesn’t necessarily stop things going wrong, and then when things do go wrong you have to pay them again to have a long, complex and expensive argument with other lawyers who are also being paid more the longer the whole thing drags on.  Not exactly a recipe for trust.

 

So maybe the many people I’ve encountered who have expressed views similar to the ones above have a point, right?

 

Wrong.

 

Below and over the next couple of articles, I’ll be breaking this down – with the aims of:

 

  • Correcting a few misconceptions about what makes a proper contract “proper”; and

  • Demonstrating that having proper contracts in place is both essential and possible (and needn’t take hours or cost the earth).

 

“I know my home-made one-page contract may not cut the mustard, legally speaking…”

 

So you’ve decided that having some sort of contract in place is a good idea, yet you’re not fussed about it working as a contract?!  Now, that may be perfectly legitimate – one of the main functions a contract fulfils is to set out and capture everyone’s shared intentions and understanding, so you could argue, perfectly reasonably, that so long as it does this then it doesn’t matter whether or not it’s enforceable.  Except why call it a contract if you don’t intend for it to be binding and therefore, ultimately, enforceable?  If you’re happy that everyone can outright ignore everything you’ve written, with complete impunity, why waste the ink?

 

In addition, lack of enforceability isn’t the only way in which a contract can fail to “cut the mustard, legally speaking” – one reason lawyers spend so long wrangling over seemingly tiny differences in wording is to avoid dangerous ambiguity.  A lawyer, when looking at contract drafting, will ask themselves, “How could this be misconstrued – deliberately or innocently?”  If your main aim with your home-made one-page contract is to establish some clear ground “rules” that everyone will play by, it’s a pretty major problem if those “rules” are not, in fact, clear.

 

Even worse, what if your contract is enforceable, but, because of an unintended ambiguity, can be interpreted in a way that messes you up?  Then you’re in a worse position than you would be with no contract at all.

 

In short, if you think it’s worth putting in place a contract of any sort – home-made one-pager or otherwise – then it’s worth getting it right; conversely, if it doesn’t matter whether or not you get it right, why bother with a contract at all?

 

“…but I understand it…”

 

This is actually a really good point.  If you don’t understand your contracts, how can you make them live and breathe, how can you police your rights and how can you have meaningful discussions about it without involving an interpreter (a.k.a. lawyer)?

 

However, there’s no need to sacrifice enforceability and certainty in order to achieve something you can understand.  It’s perfectly possible for unambiguous and enforceable contracts to be written in a way that most people can comprehend – it just takes a bit more effort (and bravery and imagination) than some of my more hidebound legal colleagues are willing to invest.

 

On the other hand, if, in producing something you understand, you’ve inadvertently also created something that doesn’t work (or is actively dangerous) then congratulations – you’ve just got yourself a perfectly comprehensible piece of useless (or dangerous) rubbish.  Ease of understanding is important, but putting it above considerations of certainty and enforceability is folly.

 

“…it’s never let me down before…”

 

Great!  But has it ever been stress-tested?  Is it really the contract itself that’s keeping you safe, or is it the people you’re doing business with who haven’t let you down?

 

If you can honestly say that something has gone wrong and you were able to point to and rely on your contract to put it right, then congratulations – you probably have a decent contract (unless you just got lucky).  Otherwise, you’re riding into battle wearing the Emperor’s New Armour and it’s only when an arrow hits you that you can truly say whether the armour is awesome, or you’re actually just naked.

 

Plus, I’m always very wary about using the past as a predictor of the future in this way – it’s just a bit too closely related to the gambler’s fallacy for my liking.

 

“…and look – it’s only one page!”

 

Again, a potentially very good point.  As someone who’s spent many hours trudging through agreements  that were so long they could, when printed, literally stop a bullet, believe me when I say that I’m very much in favour of brief contracts.

 

However, just as with ease of understanding, brevity is not the be-all and end-all when it comes to contracts.  In fact, very often ease of understanding and brevity are in tension with each other – one of the more benign reasons for certain legalistic turns of phrase being used is that they are often a verbally economic way of saying some pretty complex stuff.  In my ongoing quest to create plain English versions of the more common types of contract, I’m often finding that the plain English version is longer than the legalese version.

 

Is that necessarily a bad thing?  I would argue that it’s not – I’d rather read 4 pages of simple, flowing prose than 1 page of really dense wording that has me reaching for the legal dictionary every other word.

 

That said, there are often times when a quick snapshot of what’s been agreed is both cosmetically important and a useful aid to understanding.  In those cases, if you can genuinely distil everything that needs to be said into one page then fantastic, but if you find that doing so starts to sacrifice enforceability or introduce unhelpful or dangerous ambiguity then what’s stopping you from starting the contract with a (non-binding) one-page summary, backed up by “proper” contract drafting in the following pages?  Surely that’s a better solution than sacrificing certainty and enforceability on the altar of brevity?

 

conclusions

 

In short:

 

  • If it’s worth having a contract at all, it’s worth getting it right; if it’s not worth getting it right, it’s not worth having a contract.

 

  • Ease of understanding is important, but not more important than certainty and enforceability; however, it doesn’t have to be a trade-off between those things.

 

  • You can’t sensibly say your contract’s bomb-proof if it’s never been bombed, and you should be wary of using smooth roads behind you to predict smooth roads ahead.

 

  • Brevity is good, but ease of understanding is better – and there are other ways (like summaries) to achieve the main benefits of brevity without making your contracts bad.

 

In the next article we’ll look at why the expense and inconvenience of litigating contract disputes is not a valid reason to decide you don’t care about contracts.  Try to contain your excitement until then – your chair probably isn’t waterproof.

 

© 2018 Candid Commercial Limited

 

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