Contract Drafting As A Commodity?

I cannot disagree with Contract Drafting for the 21st Century: A Conversation Between Ken Adams and Ron Friedmann from Strategic Legal Technology.

Ron: It sounds like you think contract drafting should be a commodity.

Ken: Yes, in large measure. And that’s entirely achievable, given all the sophisticated information-technology tools now available to organizations that produce contracts. Companies that buy stuff or sell stuff generally use a few templates repeatedly. After a certain point, their contract volume will be big enough that it would be cost-effective for them to shift to drafting contracts by having their lawyers or, ideally, their businesspeople complete an online questionnaire. Once the questionnaire is completed, clicking “Done” would cause the system to pull together and adjust appropriately the pre-loaded and pre-approved contract language.
A rigorous document-assembly system for contract drafting would save time and money and would allow transactional lawyers to focus on tasks where they add real value—helping devise deal strategy and taking part in negotiations. But serious cultural obstacles remain. I suspect that people who buy into my view of things currently represent a small minority. Sure, you hear a lot of talk of change, but I’ve seen little in the way of action to back it up. So the vast silent majority perpetuates the current dysfunction.

Writing contract ought not take second to the "deal strategy and taking part in negotiations" but this - in my humble, small town opinion - requires a long term relationship with the client.

Nor it Mr. Adams.' views outside of current thinking. Richard Susskind has been predicting similar changes in how we provide legal services for quite some time.

Prophet Richard Susskind Predicts the Future of Law; Internet is Key:
"Now that the ubiquity of e-mail is no longer seen as a wild prediction but an established fact, newer cutting-edge changes to what Susskind describes as the classic interface between lawyers and clients include services that allow clients of some major United Kingdom law firms to download standard contract documents and lawyers in British courts to download standard judicial orders.

How Contracts Help Fight Fraud

From the Supply Excellence blog comes Fraud Risks (and how Contracts can help):

In other words, a head-in-the-sand approach or playing nice will not protect against fraud … it’ll just prevent you from knowing about it until it’s too late. And while communication early and often is key, the contract tweaks Neil highlighted also point to an important step technology can play in reducing risks of fraud.

Having pre-approved clause language and proper process and approvals in an automated contract management system may root out instances where fraud can take place in the first place. And, worse case, it provides improved after-the-fact visibility in the event that it is not caught proactively.

Notice it is just any contract but a well-written contract that helps fight fraud. Here is another point where a good relationship with the business' lawyer can help prevent problems - such as lost proftis.

Indiana Court of Appeals Decides Man Incompetent and So Is His Contract

From The Indiana Lawyer comes Man wasn t competent to sign contract

The Indiana Court of Appeals affirmed a neighbor of a mentally ill man shouldn't have been able to purchase the man's farm because the man was incompetent when he signed the sales contract.

In James Nichols v. Estate of Ernest M Tyler, No. 45A04-0811-CV-640, the appellate court determined the trial court didn't err when it concluded Ernest Tyler was incompetent in February 2005 to convey his farm nor did it err by determining James Nichols failed to rebut the presumption of undue influence over Tyler with regard to the real property transfer.

I cannot but help raise my eyebrows at the fact that the attorney who drew up the Power of Attorney did not question Tyler's competency.

Meanwhile, looking at the actual opinion, there are some very important facts left out of the news report (pages 2 -3 of the opinion):

In March 2002, with the assistance of Shuster, Tyler formed a revocable living trust and transferred to the trust the real estate, including a 124 acre farm and a farmhouse valued together at about $1.5 million, which he had inherited from his mother. Nichols was the trustee of the trust and Tyler was the sole beneficiary. On February 8, 2005, Tyler signed a Direction to Sign Contract for Conditional Sale of Real Estate (the “Contract”), directing Nichols as trustee to sell his real estate held in trust to Nichols. Nichols took the property by another trust which he formed. Under the terms of the Contract, Tyler retained a life estate in the property, and Nichols was required to pay Tyler $200 per month until Tyler‟s death. Nichols was also responsible for paying all taxes, assessments, and insurance with respect to the property. Throughout the dealings between Tyler, Nichols, and Shuster, Shuster was never made aware of Tyler‟s mental health history.

Contracts, Language and Making a Fetish of Archaic Style

I really admire AdamsDrafting Blog and Mr. Adams sane approach to drafting contracts.

What to Do When the Other Side Wants to Change Your MSCD-Compliant Language may lack a punch of some other posts but it brings to mind similar discussions:

But that said, it’s likely that anyone who’s a mindless slave to traditional usages will, on reviewing an MSCD-compliant draft, instinctively seek to change the language back to what they’re used to. I don’t know how often that happens—I’d be interested to hear, dear readers, what your experience has been.

An obvious response would be to tell anyone requesting changes that you’re only going to consider changes that have a bearing on meaning, and that nothing would be gained by racking up lawyer time discussing stylistic changes. It’s standard deal etiquette that you stick with the drafter’s language unless you have good reason for asking for a change.

I think too many clients think that a contract not overflowing with legalisms (and especially archaic legalisms) must be necessarily shoddy when the opposite is true.

A contract should say what it means in language that all understand so all know what is required of them.

And for those who think anyone can write any contract, please understand plain English contracts are harder than one might think. Those who think so might just think that parodying Ernest Hemingway is also an easy task when it is not.

Those interested in contracts need to keep an eye on the Adams Drafting Blog.

Stupid Lawyers

Thanks to Google Alerts I got to read this forum exchange: drafting documents yourself. valid?. My subject line says what I took away from this short exchange.

I have written before on here about using online or computerized legal forms. They area fact of life that lawyers needs to start acknowledging and get our heads out of the sand.

Lat night, I ran across the Funded Founders Institute and its agreements page. I am still puzzling over this one, but for the lawyers reading this I think the point is their sophistication. Which might even cause more problems for consumers.

The general public will use online forms because they see a way of saving money. The general public needs educating that with these forms you get what you pay for. If you do not use them correctly, then you have a good shot at paying a whole lot more to get the problems corrected than what you spent to create the problem.

I have no problem if a client uses an online form as a draft that they want me to review and tweak. Here lies their true worth: they get the client thinking about the subject (cohabitation agreements, prenuptial agreements, power of attorney, etc.) and that can be the hardest part in any conversation about the subject (cohabitation agreements, prenuptial agreements, power of attorney, etc.).

So, people, use them but get a lawyer to review what you are doing. Yes, you will save money and maybe even more than you think.

Indiana Contracts - No Picking and Choosing

From The Indiana Lawyer, Parties can t pick certain provisions to enforce reports on a recent contract case from The Indiana Court of Appeals.

The Indiana Court of Appeals addressed an issue of first impression today regarding whether a person could seek to enforce rights under a vehicle purchasing agreement he didn't sign but then disavow other provisions set forth in the same document.

The issue in TWH, Inc. d/b/a Tom Wood Honda v. Jennifer Binford, No. 48A02-0805-CV-441, is whether Jennifer Binford was required to arbitrate her complaint of breach of warranty and fraud against the car dealer. Binford bought a used car for her son, Aaron. She was the only one to sign the purchase agreement with Tom Wood, which included an arbitration provision. Both she and Aaron signed the retail installment contract, which didn't have an arbitration provision.

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Aaron didn't initially sign the purchase agreement, but he then petitioned for permissive joinder since he is the co-purchaser of the car. As such, it constitutes a judicial admission and binds him to the arbitration provision in the purchase agreement, wrote Judge Edward Najam. Binford and her son can't seek affirmative relief from the transaction and disavow the arbitration provision in the purchase agreement. Tom Wood has proven that the dispute is the type of claim the parties agreed to arbitrate, so the appellate court reversed the denial of the motion to compel arbitration and remanded with instructions for the trial court to grant Tom Wood's motion and to enter judgment accordingly.

Or as Terry Nelson once said to me: you cnanot have your cake and eat it, too.

Remember, if you want more information about retaining me for a case, please give me a call at 765-641-7906.

So You Want to Start a Band - Music Contract

When I was much, much younger I had friends in bands. I think they might have wanted Music Contract - Band Members Agreement from musiccontract.co.uk:

"So what is this music contract known as the “Band Members Agreement?”"

Well it can outline in advance what roles the band members play in its future. These are some examples but they can vary a great deal. Can a band member work with another artist? What happens if one band member dies? How should the profits from, for example, royalties be split? Who pays any band debts? Who looks after the bands finances? Who owns any assets, equipment, transport etc? Who has ownership of the copyrights of the songs? Who takes care of any master recordings? Who decides when to employ or fire a manager? Who owns and has the legal right to use the bands name? Often all members of the band own the name. Are the decisions of the band made by committee, by a votes system? Alternatively, is this responsibility left to one or two band members?

Please note that in the absence of any written agreement the law of the land in your country may ultimately decide things on your behalf, as is the case in state partnership law in America. Based on this, as with any legal matter, it would be better if a music attorney were employed to draw up the contract. In an ideal world every member of the band would have a music attorney to represent their interest and help to make the music contract more equitable and fair between band members. “Well that sounds like a whole load of money?” I hear you say. You can hold off the cost by agreeing on paper the basic things that should be included in the Band Members Agreement until a later date when things get on to a more serious financial footing. The band can then look at employing professional advice. Remember that, music contracts are drawn up to limit the likelihood of a serious financial or artistic dispute. If such events do occur, then a music contract as with any contract is there also to resolve any issues that might arise. Without them, everything is based on nothing more than a handshake or hearsay. Although music contracts are a psychologically uncomfortable issue to deal with for bands they are a necessary evil in the long run. Bear in mind that proposing a Band Members Agreement could be an excellent way of testing the amicability of the band members, if they argue before they have an agreement imagine what it would be like without one later on when things are really serious. This article is not intended to be legal advice. As always take professional advice before you ever sign a music contract.

On the other hand, none of my friends really thought of the music as a business. The thing is that music is a business if you want to make a living at it. The Rolling Stones understood this but then Jagger attended the London School of Economics. For those who still do not understand the concept, take a listen to this from The Byrds.

For American bands, I can only recommend the form contract linked to in the quote as starting point. Get yourself to a lawyer for a finished product.

Online Resource: Digital Signatures

Courtesy of the American Bar Association comes this Digital Signature Guidelines - Tutorial. For those thinking about contracts, I suggest reading this section in particular:

A signature is not part of the substance of a transaction, but rather of its representation or form. Signing writings serve the following general purposes:

* Evidence: A signature authenticates a writing by identifying the signer with the signed document. When the signer makes a mark in a distinctive manner, the writing becomes attributable to the signer.
* Ceremony: The act of signing a document calls to the signer's attention the legal significance of the signer's act, and thereby helps prevent "inconsiderate engagements.
* Approval: In certain contexts defined by law or custom, a signature expresses the signer's approval or authorization of the writing, or the signer's intention that it have legal effect.
* Efficiency and logistics: A signature on a written document often imparts a sense of clarity and finality to the transaction and may lessen the subsequent need to inquire beyond the face of a document.Negotiable instruments, for example, rely upon formal requirements, including a signature, for their ability to change hands with ease, rapidity, and minimal interruption.

The formal requirements for legal transactions, including the need for signatures, vary in different legal systems, and also vary with the passage of time. There is also variance in the legal consequences of failure to cast the transaction in a required form. The statute of frauds of the common law tradition, for example, does not render a transaction invalid for lack of a "writing signed by the party to be charged," but rather makes it unenforceable in court,<9> a distinction which has caused the practical application of the statute to be greatly limited in case law.

During this century, most legal systems have reduced formal requirements,<10> or at least have minimized the consequences of failure to satisfy formal requirements. Nevertheless, sound practice still calls for transactions to be formalized in a manner which assures the parties of their validity and enforceability.<11> In current practice, formalization usually involves documenting the transaction on paper and signing or authenticating the paper. Traditional methods, however, are undergoing fundamental change. Documents continue to be written on paper, but sometimes merely to satisfy the need for a legally recognized form. In many instances, the information exchanged to effect a transaction never takes paper form. Computer-based information can also be utilized differently than its paper counterpart. For example, computers can "read" digital information and transform the information or take programmable actions based on the information. Information stored as bits rather than as atoms of ink and paper can travel near the speed of light, may be duplicated without limit and with insignificant cost.

Business Law: Funeral home Sues Archdiocese of Louisville

Can a business sue a religious organization for interfering with its business? That is the question I get from The Courier-Journal's Funeral home director suing Archdiocese of Louisville for business interference:

"A Nelson County funeral home director is suing the Archdiocese of Louisville and a Roman Catholic priest, whom he accuses of undercutting his business by implementing new rules on conducting funerals at his parish.
Advertisement

The Rev. Jeffrey Leger, pastor of St. Catherine Church in New Haven, put a new policy into effect last month, stipulating that funeral directors can no longer solely plan funerals. Instead, they must now plan them with Leger, who has final say.

The new policy, which Leger outlined in a 10-page letter to funeral directors, strictly enforces church law and liturgical practices that limit such things as the types of readings, music and eulogies at funeral Masses."

Ron Rust, owner of the William R. Rust Funeral Home in New Haven, said the policy will interfere with his longstanding business of coordinating funerals that are held at St. Catherine.

The policy marks "an intentional and wrongful interference" in the dealings between the funeral home and its customers and will cost Rust funerals and income, according to his suit filed Aug. 7 in Nelson Circuit Court.

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Rust claims a "right to direct funerals in accordance with the wishes of the family of deceased individuals without the constraints" of Leger's policy, it says.

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Anything that could distract from that should be avoided, he wrote, adding that eulogies, recorded music and nonbiblical readings such as poetry and letters are forbidden except under limited circumstances.

Such personalized features should take place at the vigil service, typically held the evening before the Mass at either the church or the funeral home, he said.

Contracts: Read' em!

SmallBizResource.com has something I wished I written in Small Print, Big Consequences:

"When you take the time to read a contract before you sign it, you can try to get clauses like that changed. If a company wants your business badly enough, and the change is minor, (i.e., no early cancellation fee), they may agree to the change. But once you sign on that proverbial dotted line and start using the product or service, you'll have little luck getting things like early cancellation fees or other clauses you think are unfair changed."

So? How Good is an Oral Contracts?

Franchise Trade's Oral Contracts: Do They Carry Any Weight? is something I wish I had written and something that should be read in full. The short, pungent answer is "Yes, they can." (The more lawyerly answer is they: depends on the contract.)

"The answer is yes -- as long as you can prove it in court. It's interesting to note that many powerful people have engaged in handshake deals, from Bill Clinton and Newt Gingrich to Bill Gates and Steve Jobs. But more than likely, these handshake deals were followed by large contracts that outlined key deal points and terms. If you are the type of person who prefers informal agreements sealed by a handshake, at the very least, have a few people on hand to witness you 'shake on it.' A handshake deal is always more binding when there are witnesses to the agreement. In other words, avoid agreeing to anything in a dark alley when no one else is looking."

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Failing witness testimony or any actions that verify your handshake deal, you can always present supporting materials to strengthen your claim. For example, any correspondence between two parties is admissible in court, particularly if it is sent certified mail. Faxes, emails, letters, memos and receipts all help establish your handshake deal. If you are particularly uncomfortable drawing up a contract -- say with a friend -- a simple "thank you" letter immediately following a handshake is always a good way to establish the terms of your agreement. The recipient will not think of it as possible "evidence," but simply as a polite gesture.

TLD's General Counsel Blog : Contract Disputes Are On The Rise

I am big cheerleader for what TLD's General Counsel Blog advocates in Contract Disputes Are On The Rise:

"Contract disputes are on the rise. I always encourage small business owners to include attorney's fee provisions in all contracts to be able to recoup the expenses of collection or enforcement of agreements. The precise language, however, must be carefully considered. In the event the term 'reasonable attorney's fees' is used, then the court fixes the fees, thereby leaving open the possibility that the prevailing party will not recoup all of the amount spent. By contrast, if the term 'actual attorney's fees' is used, then the prevailing party can recover the actual amount spent on attorneys."

This kind of clause I see missing in all kinds of contract drafted by non-lawyers. The non-lawyers think they have save sooooooooooo much by doing it themselves. Then the contract goes bad and any savings vanish.

I have not seen "actual attorney fees" used but I think it is a good idea. I still know some judges who will cut fees under the "reasonable attorney fees" language who will do so probalby under this kind of language.

One Truly Great Article on Contracts and Agreements

Harry Thomas Hackney, P.A. of the Florida Law Blawg puts a lot of wisdom into his Get It In Writing AND Make It Clear:

"I was listening to a podcast of a speech recently when the speaker said something such as “Lawyers always say, get it in writing because then there is no doubt what you meant. You can’t argue with what’s written.” It was like nails on a chalkboard to my ear. The naivete! Only a non-lawyer could say that getting an agreement in writing ends all disputes.

You should get any important agreement in writing. Without a written agreement or understanding, there can be wild variations and disagreements as to what was said or agreed upon. However, getting it in writing won’t eliminate all disputes. A written agreement will certainly reduce the chance of a dispute and eliminate many areas of dispute, but no agreement is ever perfect."

The remainder is a good read, too.

People tell me that they had no contract - there was no writing. That can be very wrong. As the article above points out, a written contract is evidence of the agreement. What the written contract evidences is another matter altogether.

Business Law: The Contract from Hell

What makes a badly written contract? Business owners who think the better contract brims with legalese needs to read How To Earn Undying Loyalty From Business Clients (Part 1) - Guest Blogger Anita Campbell.

I came through law school after the start of the Plain English movement had begun but I think even without that education my natural impatience would have gravitated towards plain English in legal writing. Think about it. A contract acts as a blueprint for a contract. What happens if the people to that contract cannot understand what they are supposed to do under the contract?

So What Is Contract Law?

At forty-eight, I doubt I have time to answer that question. Here is a far less facetious answer: it is the law of private agreements. I can more easily say that contracts are more than the paper that most people think are contracts. Those documents saying contracts exist more as evidence of the agreement.

What I can do is suggest reading this outline of contract law (thanks to Deal Lawyer Blog for this). Reading this might show my facetious answer was not so facetious after all.

If you are located in Indiana looking for an attorney to draft a contract or need similar business law services, I am taking on new clients. I am also taking on contract litigation in Indiana.

Indiana Appellate Cases: Third Party Interfering With Contracts

On March 20th, the Indiana Court of Appeals handed down its opinion in Allison v. Union Hospital (PDF format) that dealt with tortious interference with contractual relationship against Union Hospital and Wabash Valley Anesthesia, P.C. (the other appellee) and constructive fraud and breach of the duty of good faith and fair dealing against Union.

Allison (and Safford, the other appellant) lost on both claims at the trial court level and had a split decision with the Court of Appeals. The Court of Appeals reversed the trial court on the tortious interference claim but upheld the other claims.

The opinion contains a refresher on the tort's elements:

A plaintiff alleging tortious interference with a contractual relationship must establish five elements: (I) the existence of a valid and enforceable contract: (2) the defendant's knowledge of the existence of the contract; (3) the defendant's intentional inducement of the breach of the contract; (4) the absence of justification; and (5) damages resulting from the defendant's wrongful inducement of the breach. (citation omitted).

This case focuses on the justification element. The Indiana Supreme Court has set out the following factors for judging whether or not the defendant acted with justification:

(a) the nature of the defendant's conduct;
(b) the defendant's motive;
(c) the interests of the plaintiff with which the defendant's conduct interferes;
(d) the interests sought to be advanced by the defendant;
(e) the social interests in protecting the freedom of action of the defendant and the contractual interests of the plaintiff;
(f) the proximate or remoteness of the defendant's conduct to the interference: and
(g) the relations between the parties.

The Indiana Court of Appeals proceeded to evaluate the facts of the case against these guidelines. It then made the following decision:

In weighing all of these factors, we find this to be a very close call. And as noted above, the ultimate question relating to the justification of the defendant's conduct is whether that conduct has been fair and reasonable under the circurnstances. We find this inquiry to he so highly- fact sensitive that we conclude it is best answered by a factfinder. Although it is possible that under certain circumstances this question may lie answered as a matter of law-and, indeed, we make just such a finding with respect to WVA below- we do not find that to be the case with respect to Union, based primarily on its conduct with respect to the without cause termination provision....

I must say this case has some unusual features - Union Hospital admitted entering into a contract it had no intention of honoring - which probably helped lead to the decision for a remand for trial rather a decision as a matter of law.

Having confronted several of these tortious interference cases, my thought is that the lack of justification element is generally the make or break element. If the case is a good tortious interference case, then the other elements ought to be readily apparent with an appropriate support of the evidence. (For example, last week a client wrote me about what would appear a good tortious interference case except there was no interference - the clients were not impressed by the attempted interference.) With this opinion, Indiana has a very a good explanation of when a third party lacks justification for its interference.

Indiana Court of Appeals Holds Federal Arbitration Act Controls Interstate Contracts

On February 8, 20085, the Indiana Court of Appeals decided Lasalle Group, Inc v. Electromation of Delaware County, Inc. (PDF format). Since the contract was between companies of different states and had an arbitration clause, the Federal Arbitration Act applied to the case.

Be wary of contracts with out-of-state companies with arbitration clauses. Indiana statutes conflicting with the federal act will be of no use in protecting you from a bad choice.

Contract Drafting - A Look at Best Efforts

Adams Drafting blogs about writing legal documents about the same way Michael Jordan played basketball. While reading What the Heck Does “Best Efforts” Mean? , I debated myself about actually doing this blog. I get few lawyers reading this blog and this is a bit too much of "inside baseball" for most laypeople. So why am I writing this post? Because the idea of this blog was not to exclude the public.

If you want to see the complexity of drafting contracts, read Adams' article. For those wanting to understand why lawyers are useful for drafting their contracts:

But whereas some lawyers regard reasonable efforts as a misinterpretation-proof replacement for best efforts, others regard both terms as two points on a spectrum of efforts that a party might be required to expend, ranging from the relatively modest to the extraordinary, the latter being represented by best efforts. This interpretation is facilitated by colloquial use of reasonable to mean “not extreme,” as in She got a reasonable grade on her French test.

What difference does this make? Money is my short answer. The difference lies between a contract successfully carrying out the intent of its parties and an unsuccessful one.

For those lawyers in the crowd, think about this paragraph:

I think the problem is that people approach it as an issue to be resolved by case law, whereas I see it first of all as a matter of semantics. What does best efforts mean in general usage? And what are the implications of seeking to have it mean something other than that?

Provocative and worth reading.

Contracts - Breach

Let's talk about contracts for a minute or more.

You spent time, energy, and money in negotiating the terms of the contract. Why? To make money, of course. The contract speaks of what each party is to do and what they get for doing these things.

The contract also sets out what will happen if there is a breakdown. The law calls that breakdown a breach of contract.

Perhaps lawyers expend too much energy worrying about breaches of contract but the fundamental idea behind a contract is to make the thing work. A breach means the thing did not work as planned. Besides litigation costs more money than the time spent in negotiating the contract.

Business contracts: What to do when a third party interferes with your contract?

X contracts with Y but before completing the contract Y starts doing business with Z. Can X do anything about this?

Under Indiana law, X may have a lawsuit for tortious interference with contract. Indiana law has five things that must be proven for a tortious interference with contract claim.

(1) the existence of a valid and enforceable contract;
(2) defendant's knowledge of the existence of the contract;
(3) defendant's intentional inducement of breach of the contract;
(4) the absence of justification; and
(5) resulting damages.

I assume for this post that X has a valid and enforceable contract, and I assume that Z knew of the contract between X and Y, and also assumed is X can show the financial harm satisfying the fifth requirement.

For inducement, think causation. That Z did something that which acted as the moving force that lead to Y breaching the contract with X. However, inducing is more than mere negligence.

Does this mean that competitors cannot compete? No. While the issue can be a close one in some cases, the lack of justification protects the idea of business competition. For justification the courts will look to the following: (a) the nature of the defendant's conduct; (b) the defendant's motive; (c) the interests of the plaintiff with which the defendant's conduct interferes; (d) the interests sought to be advanced by the defendant; (e) the social interests in protecting the freedom of action of the defendant and the contractual interests of the plaintiff; (f) the proximity or remoteness of the defendant's conduct to the interference; and (g) the relations between the parties. See Winkler v. V.G. Reed & Sons, 638 N.E.2d 1228, 1235 (Ind. 1994).

Related to this type of are the tort of intentional interference with a business relationship and interference with a prospective advantage. The principal difference between these kind of cases and tortious interference with contract is that the other types do not require a contract. I will write about these kind of cases another day.

If you have a possible tortious interference with contract case from Indiana and need to consult with an attorney, please feel free to contact me.

For those interested in reading more of my posts related to this post, you just need to click the links below and next to the word label for business law, consumer protection, and/or contracts.