10 things I hate to see in contracts

growlMany of the following points are commonly seen in contracts, and may be in the template agreements that you use when you start to prepare an individual contract.  In IP Draughts’ view, these points should usually be removed or corrected when preparing the first draft of a contract.

  1. All the parties are named in a single paragraph.  This practice, commonly seen in US contracts, makes it harder work to identify the parties.  This is particularly true where there are more than two parties.  Put them in separate, numbered paragraphs and use capitals or bold text to make the party names easy to find.
  2. Recitals that include obligations. The recitals, sometimes called whereas clauses or background clauses, are there to provide some brief background or a summary of what the contract is about.  They should not include any contractual or other obligations (eg representations).  They are not compulsory.  Sometimes (eg in some short contracts) recitals are best omitted from the contract.
  3. No introductory text before the start of the substantive obligations. Some contracts fail to make a clear distinction between recitals and substantive obligations.  It is useful to put in some brief text that signals, in effect, “now the contractual obligations are starting, before now was just an introduction”.  But don’t include that lengthy stuff that runs on for several lines, again from US contracts, about “for other good and valuable consideration,” etc.  Keep it short, eg “the parties agree as follows”.
  4. Interpretation clauses that appear immediately after the definitions, eg as clause 1.2.  If you must say that the masculine embraces the feminine, or similar tosh, put it at the back of the contract, with the other boilerplate.
  5. Long sentences. Sentences that run on for several lines are difficult to understand. If the sentence seems too long, put in a full stop and start a new sentence.
  6. Long paragraphs of contractual obligations. Keep them short, eg less than 12 lines and ideally less than 6 lines.  Put in plenty of headings to aid readability.
  7. Can you spot the differences between these two images?

    Can you spot the differences between these two images?

    Inconsistency. Don’t start one obligation with “undertakes to”, the next with “agrees to”, the next with “shall”, the next with “will” etc.  It is sloppy and suggests a lack of care and attention to detail.  Similarly, if you have a set of definitions, don’t end some with a semi-colon, and some with a full stop, and don’t start some with “shall mean” and others with “means”.  Clean this stuff up before you send out your draft.

  8. Muddled structure. Keep similar topics together, eg don’t put some warranties in clause 3 and others in clause 10.  Try to make the contract flow logically, eg by putting any conditions precedent at the beginning, and termination clauses towards the end.
  9. Obligations on people who are not parties. It doesn’t make sense to state that the Principal Investigator must do something, if he or she is not a party.  If such a reference is considered necessary, think about how to structure it, eg should it be an obligation on one of the parties to ensure that the Principal Investigator performs the stated activity.
  10. Signature blocks that the parties don’t understand. Avoid the old-fashioned signature blocks with brackets down the middle of the page.  Very few business clients know where to sign them.  Keep the format simple and easy to use.
Traditional signature block

Traditional signature block

19 Comments

Filed under Contract drafting

19 responses to “10 things I hate to see in contracts

  1. I never understood the brackets down the middle thing, but it seemed absolutely de rigueur for contracts (many of the books I read recommended them). Glad to hear the UK expert on the subject denigrate them.

    I can see a comedy contract drafting exercise to make one that is as bad as possible. Sadly I think we all see ones like that every day.

    • Francis, I have a “bad” licence agreement that I use in training. I had fun drafting it a few years ago. I don’t think it has the brackets things though. I’ll email you a copy.

  2. dezoysa

    Thanks for this informative blog. I work as a translator (German and Dutch into English) and translating contracts is my bread-and-butter work. Obviously, as a translator, there’s not a lot of leeway with what we put down on paper, but your points relating to Long sentences and Inconsistency are very relevant, as the translator can quite legitimately cut down long sentences into smaller chunks (using colons and semicolons) and can ensure grammatical consistency in the translation, even if the source text is inconsistent.
    I have a question: what’s your view on capitalisation, eg Parties compared to parties, or Agreement compared to agreement. Personally, I don’t like capitalising these words because, from my translator’s viewpoint, when translating German, where all nouns are capitalised, I then have to make a decision between Agreement (the specific Agreement) or the agreement (ie agreements in general). What is your view?
    Perhaps you have some pet peeves about legal translations that you can share?
    Looking forward to reading more of your blogs.

    • Interesting subject, but not one that I have much to contribute to, as I only see non-English contracts very occasionally, and unless they are in French I don’t have any real hope of understanding them or comparing their text with an English version. From our looseleaf work on biotech agreements, which has German and Dutch contributors, I became aware that terms that can be translated as “gross negligence and wilful misconduct” are important in civil law contracts as things that one cannot exclude liability for. More generally I am nervous about translating legal concepts in case one ends up with “faux amis” or only an approximate similarity. For example, I wonder whether the distinction that many common lawyers make between representations and warranties survives in a meaningful way when it is translated into another language’s legal terminology.

      On parties, English contracts vary as to whether these terms are capitalised, so I wouldn’t get too hung up about changing the original in a translation. In contracts where it is a defined term, one should be consistent in usage with other definitions. Personally I wouldn’t care if the fact that terms are defined were signaled by a method other than capitalisation, eg putting the defined words in bold or italic text.

      The rational part of my brain probably has the same view about this Agreement / this agreement as it does about Parties / parties, but a small hidebound part of me likes to see this Agreement (even though i don’t usually define the term) as a signal that we are talking about the present agreement and not another one that is not capitalised. However, in a translated agreement I wouldn’t be too concerned either way.

      Dare I say it aloud, but some continental European agreements that I have seen (and therefore also their translations into English) are drafted in a rather casual way, without close attention to consistency. Some others (including some that are drafted in English) seem to have used US templates.

  3. DC (in relation to your comment at 2.50 pm UK time): I still come back to the question, are you drafting to win in court or drafting to provide wriggle room and debating points? I think the lawyer’s first duty is to draft with an eye to winning in court, unless instructed otherwise by a client who knowingly decides (and instructs the lawyer) to focus on commercial positioning rather than legal effectiveness. And I think it is part of the lawyer’s duty not to be a yes-man for the strong-willed client, but instead to give accurate and independent advice. Recognising, of course, that the client may decide to ignore that advice, and that that is their prerogative, given that winning in court is only part of the multi-dimensional chess game that is running a business. And that if the lawyer is asked to act as advocate rather than predictor of court outcomes then he or she may well go along with the client’s point of view.

    • I’m sorry, Mark, I should have been more clear: In my hypothetical situation, the “sound bite” strong version will be drafted by Party B’s lawyer, who wants to prohibit Party A from doing X. Party B’s negotiator should recognize that in the future, Party A’s lawyer might have trouble persuading Party A’s business people to honor the contractual prohibition.

      I once saw that happen first-hand: A client’s counterparty, which was a very large global company, refused to honor a provision in a contract with the (my) client. This was on advice of the counterparty’s senior in-house litigation counsel, who baldly asserted over the phone that the (straightforward) interpretation of the provision in question was absurd, that no one would ever agree to it. The mid-level transactional lawyer, with whom I’d previously negotiated the contract, in essence apologized to me later (between the lines, not explicitly) for the risible position his colleague was taking. The impression I got was that the counterparty’s business people had changed their minds and were not afraid to throw the counterparty’s economic weight around. The dispute led to litigation, which settled for business reasons.

      I agree completely with what I think you might be implying, namely: If we assume arguendo that Party A is to be prohibited from doing X, then Party A’s lawyer should prefer the “short and sweet” simple version of the prohibition, to try to preserve his client’s future maneuvering room to the greatest extent possible.

  4. Responding to Vance’s #1 and #3: A contract is not a computer program that will be read and performed by a bloodless machine. For that reason, I don’t mind (sparingly) including quotable “sound bites” to help convey more meaning to future readers such as business executives, judges, and jurors.

    EXAMPLE: Compare the short and sweet “Party A will not do X” with the much-stronger “Party A specifically agrees that under no circumstances will it ever do X.” Logically, the two are equivalent. BUT, imagine that in the future, some executive of Party A decides that it would be a really, really good idea for Party A to do X — and, as executives are wont to do, she forcefully argues her case to her colleagues and Party A’s counsel. The stronger phrasing above is just a bit more likely to help keep the executive from prevailing; if she does prevail, and Party A does X despite the contractual prohibition, then the stronger version is more likely to persuade a judge or jury that Party A should be held liable.

    For any contract provision, the drafter’s overall objective must be to educate — and sometimes to persuade — the busy and fallible humans who will read the provision in the future. A few extra words here and there can sometimes help; while “good” style is a legitimate goal, it should always yield to that overall objective.

    • DC, thanks for your comments. Interesting take, and may be particularly relevant to the (only?) jurisdiction that has the crazy (in my view) use of juries in business disputes such as contracts and intellectual property.

      In any substantial dispute in the UK where a High Court judge (or equivalent) is involved, I would want to draft for the judge, not the business person, and judges in my experience take no notice of the kind of hyperbole that you describe and would be more persuaded by drafting that sticks to clear, accurate phrasing. Ultimately, the business person will be taking advice from the lawyer on the correct interpretation of the contract, who will not be so influenced by the hyperbole. So I won’t be including soundbites in my drafting.

      • PS thinking back to an earlier blog item about case law on damages being an adequate remedy, UK judges may be more like Federal judges than State judges in their approach. Whilst I am getting my prejudices out of my system early in the New Year, I am deeply suspicious about popular elections for judges in relation to business disputes!

      • Mark writes: “Ultimately, the business person will be taking advice from the lawyer on the correct interpretation of the contract, who will not be so influenced by the hyperbole.”

        That will be true in some cases, but by no means all.

        1. As a class, business executives tend to be somewhat strong-willed, and also to be creative in coming up with rationalizations why they should get what they want. (As a general rule, passive people and weak personalities are less likely to rise to the executive ranks.)

        A powerful business executive might well say something like, “Yeah, the contract says we will not do X — but we’re not -really- doing X, and besides, we have special circumstances here that the parties didn’t think about when drafting the contract. So the clause saying we won’t do X doesn’t apply to what we want to do.”

        As an example, consider the recent litigation between giant retailers Macy’s and J.C. Penney over JCP’s carrying Martha Stewart product lines. Martha Stewart’s company had an exclusive deal with Macy’s, but entered into an agreement with JCP anyway. Macy’s recently settled with Martha Stewart Enterprises, but its lawsuit against JCP continues. See, e.g., http://goo.gl/XCCIxT [reuters.com] and http://goo.gl/05532Z [online.wsj.com].

        2. Lawyers have significant incentives to go along with what their clients want. Outside counsel want to protect the client relationship for repeat business — in a law firm, a partner’s power and position depend largely on his book of business. Inside counsel want (or want to keep) a seat at the table, to not be marginalized in decision-making.

        3. Lawyers are trained to be imaginative in formulating arguments why the client’s position is correct. We’re also professionally socialized to allow the client, not ourselves, to make the call about what business risks to accept.

        The net effect is that if our business executive really wants to do X, even though it’s prohibited by the contract, the lawyer might well go along with it. And even if the lawyer objects, the business executive might proceed anyway.

        That being the case, a bit of emphasis in the contractual prohibition against doing X might help.

    • I remain unpersuaded both by the tactic of using scare words to impress either your own (truly bizarre, that) or the other side that they really, really shouldn’t do thing X (if they really want to do it they’ll do it regardless and, as the examples point out, throw around a lot of BS to intimidate the other side into forgoing redress), and by the proposition that the transactional lawyer’s job is either to educate later generations or persuade a judge. The transactional lawyer’s job *as draftsman* is to describe the transaction so pellucidly that nobody will doubt what the deal was and what the parties promised. When, irrespective of that clear understanding, a party seeks to wiggle out, well, that’s a part of business, and the lawyer’s job counseling the would-be contract breaker is to say what the risks are.

      It should be borne in mind that, at least in common law jurisdictions, breach of contract is no crime, and it is always open to a party to pay the price in damages–only the net cost of doing the deal as originally promised–and go on with something else if that is such a superior alternative. Of course, most parties will want to do the latter without the former, at which point someone (a lawyer) needs to point out the additional cost of litigation if the victim balks. Another good reason to have attorneys’ fees clauses in contracts, I should think.

  5. Mark – just this past week I spent way too much time and effort arguing that our clients could not impose obligations on individuals who are not parties to the contract. Grrr…….

  6. I’m with Ken on the opening paragraph, because just boldfacing the parties’ names should suffice to call them out to the reader (just as boldfacing definitions within the body of a contract is helpful to finding them later on).

    I’d add a few other pet peeves to the list, though, some of which irritate me even more than some of your other nine, but which when added to yours make 14 for 2014:

    1. Scare words like “under no circumstances,” “whatsoever,” “never,” and “strictly.” All these do is wag a finger and say “you naughty counterparty you, don’t think you can get away with anything while Mr. Pettifog is on the case!” It’s patronizing and rude, and doesn’t bespeak a proper attitude to a business deal.

    2. Substantive provisions in definitions, especially when there’s a separate definitions section.

    3. “Agrees to” or any of the phrases you mention in point 7 that aren’t “shall” for an obligation. Using Ken’s expedient of introducing the substantive provisions with “the parties therefore agree as follows” means you never have to say “agrees to” again in the body of the contract.

    4. “This section/article/clause [#]“: if it’s the same section, then it doesn’t matter what the section number is. Save the cross-references for denoting different sections.

    • Thanks, Vance. I have plenty more peeves in the locker. Another one that occurred to me last night was “(together with its Affiliates, the “Contractor”)”. Lumping in Affiliates in this way just doesn’t work.

  7. adamsdrafting

    Your first point is the only one I’d quibble with, as I’m happy using a single-paragraph introductory clause for two parties. The urge to break this text up might have something to do with the Commonwealth proclivity for breaking text up generally. Once you start adding on parties, though, at some point it makes sense to tabulate.

    Regarding your point 10, I’d like to hear more about that brackets-down-the-middle-of-the-page stuff. How prevalent is that? How prevalent was it? And what’s the point?

    • In my view the Commonwealth proclivity is the right proclivity! Too many US contracts have long stretches of indigestible text. As for the brackets down the middle, it is very common in traditional English contracts. For example, this format is used in a draft sale of business agreement, prepared by a leading UK law firm, that we are currently negotiating. You are supposed to sign at point B on the diagram, but many clients sign at point A.

      • adamsdrafting

        Regarding breaking up text, I advocate a middle ground. I’m no fan of the U.S. tendency to have reams of unbroken text, but I’ve also seen Commonwealth contracts that read like shopping lists.

        You can expect the brackets-down-the-middle thing to appear in MSCD4. And when you see it, you can say, “Hey, that’s because of me!,” and feel a special warm glow. ;-)

Leave a Reply

Please log in using one of these methods to post your comment:

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