Business Agreements: Say What You Mean and Mean What You Say

A timely article in the blog of Californian lawyers Albertson & Davidson on lawyers as “insurance” for business.

Drafting agreements is specialist work, and easy to get wrong the longer and more complex they get.  The only real panacea is time; that plus more than one person reviewing the final so they can pick up the drafter’s blind spots….areas of a document which the author’s mind, after reading the draft many times, is now literally skipping over as they re-read it.

The science of how minds work when drafting is quite an interesting one, albeit beyond the scope of this post.

Excerpts from the article follows (original is here):

Do you have insurance?  Nearly every business buys some type of insurance because it’s better to pay an insurance premium than it is to pay for a huge loss if something unexpected occurs.  Taking unnecessary risks is not a smart business move.

Yet businesses regularly take unwarranted legal risks when entering into agreements without properly documenting them in writing.  The “in writing” part every business owner seems to know—an agreement should be in writing.  The problem arises, however, with what is put down in writing.  All too often the terms of the agreement are not reflected in the written word on the agreement.  I meet with business owners all too often who first show me a so-called written agreement and then quickly explain how several meaningful provisions were either left out of the document or were written down incorrectly.

Why the confusion between what we mean and what we say?  Part of the problem is that language is subject to interpretation.  I have litigated many business disputes that turn on the meaning of language in a document—even lawyers and judges struggle with drafting, understanding, and interpreting “clear” language.

But the bigger problem affecting business owners is lack of attention.  Businesses just don’t have time (or at least they think they don’t) to sit down and craft a carefully worded agreement.  In the rush to seal a deal, parties often forget to record the finer points, and sometimes even the most important points and provisions, of their agreement.  And agreement terms are fluid during negotiation, so a contract drafted yesterday may not reflect the agreement today.  Yet, sometimes, it is yesterday’s draft agreement that is signed without adding in the new or changed provisions.

Having seen the mess that clients can and do get themselves into with inadequately drafted documents that are little more than a series of vague discussion points, I can certainly relate to this.  Often the worst mistakes are made by those that fancy themselves as having some drafting expertise, but actually don’t, or at least have only just enough to get themselves in serious trouble…..and yes, real estate agents and accountants, I’m looking at you lot!

The best advice for anyone entering into a new business arrangement is to take the time (all the time) needed to draft a proper agreement.  The agreement should reflect all the major terms of the transaction and as many of the minor terms as you can address.  And the language should be clear and to the point.For example, if the parties envision one side paying the other every other week then the agreement should say “payment shall be made every other week,” not “payment to be made regularly.”  And the term of the agreement should be clearly spelled out: “this agreement shall take effect on January 1, 2011 and shall expire on June 1, 2011.”  In fact, the best agreements are easy, simple, and straight forward.

Which is of course what everyone wants.  The problem is when clients think that “easy” and “simple” is, in fact, easy and simple.

Unfortunately, it takes time to make language simple and it takes time to make a written agreement reflect the intent of the parties entering into it.  But the penalty for not taking the proper amount of time to draft an agreement can be a huge loss of business and litigation costs, including lawyers’ fees.  Poorly drafted agreements, and especially oral agreements, result in full employment for lawyers.  It’s somewhat ironic that some businesses are reluctant to pay a relatively small amount to have a lawyer prepare an agreement, yet subject themselves to  much higher fees, and for a much longer period of time, if a business is caught in a lawsuit due to a poorly drafted (or never drafted) agreement.  That is the risk every business runs in entering into a business transaction without the proper written agreement in place.

Taking the proper time and seeking the proper advice in preparing a written agreement is a businesses’ “insurance policy” to avoid the huge costs of litigation.


About Ivan McIntosh

I am a partner of Carter Atmore Law...residing in City Road just off the busy thoroughfare of Symonds Street, Auckland, New Zealand....where we are specialist business & property development lawyers, working for both local and international clients. Proud husband to Joanna, and dad to two sons. Passionate rugby supporter. Email: Ph: 64 9 921 5026
This entry was posted in Banking & Finance, Business Law, Construction Law, Employment Law, Family & Relationships Law, Property Law, Residential property, Trusts & Estates Law and tagged , , , . Bookmark the permalink.

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