contract deadlines — The BUSKLAW Newsletter

From my colleague Mark Grossman comes this joke (just in time for April Fool's Day):

A man in a hot air balloon is lost. He reduces the balloon's height and spots a man below. He shouts, "Excuse me, can you tell me where I am?"

The man below says: "Yes, you're in a hot air balloon hovering at 30 feet."

"You must be a lawyer," says the balloonist.

"I am," replies the man. "How did you know?"

"Well," says the balloonist, "everything you have told me is technically correct, but useless."

The man below says, "You must work in business."

"I do," replies the balloonist, "but how did you know?"

"Well," says the lawyer, "you don't know where you are, or where you're going, but you expect me to be able to help. You're in the same position you were before we met, but now it's my fault."

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This joke illustrates the all too common (but foolish) tension between lawyers and business folks. Lawyers are trained to draft contracts in contemplation of "what if" scenarios, even if there is a good chance that they won't happen in the real world. Business folks just want to get the deal "papered," i.e., the contract signed, the product or services delivered, and payment received. But lawyers can make life so much easier for their business clients (and vice versa) if each tries to understand - and account for - what motivates the other. And it's not rocket science.

Business folks must understand that lawyers exist to protect their corporate clients from unreasonable business risk resulting in economic or reputational loss. And even if you are the company's CEO, founder, or chief cook and bottle washer, you need to understand that I as your lawyer don't represent you; I'm ethically obligated to represent the company as a whole. So you may tell me not to negotiate that beneficial risk-shifting indemnity clause because the deal has to be inked today, and I may respond that I have to because a good indemnity is in the company's best interest and well worth any delay. And you need to respect that.

Lawyers must understand that business folks view deals as time-driven so that for a seller, the revenue from the sale can be recognized on the company's books by a certain date; or that for a buyer, the seller's product or services can be provided so the project stays on track. An effective lawyer will exercise their best efforts to get the contract negotiated and ready for signature by the business team's preferred date. And lawyers shouldn't sweat inconsequential contractual details that might needlessly delay getting the agreement signed.

The best way to get a deal done is for the lawyers and business folks to keep communicating from the first day of negotiation to the last. This communication must be both intra (i.e., the legal and business folks representing the company) and inter (i.e., between the legal and business folks on both sides). Fortunately, the internet make this process a lot easier; the ability for lawyers and their business clients to jump on a Skype conference call and mark-up a MS Word document in real time is a good thing. But this assumes that both parties remain motivated to get the deal done, don't play games with each other (as in Donald Trump or Bobby "Axe" Axelrod), and aren't afraid to compromise where they can.

And each lawyer and their business client must understand - and respect - what makes the other tick.

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This is a follow-up to my recent post about contractual "gotchas." Some lawyers think that they're being crafty (and doing their clients a favor) by deliberately introducing ambiguous provisions in a contract. Plain-language expert Ken Adams points to an example from a 2007 post here. And negotiation expert and author Victoria Pynchon points to another example (involving the meaning of "sudden and accidental" from environmental liability insurance policies) from her Negotiation Law Blog.

This gamesmanship strategy is not only ethically questionable but also likely to backfire on the supposedly crafty lawyer because ambiguity often cuts both ways - and courts often interpret ambiguous provisions in a contract against the parties who drafted them.

A lawyer negotiating a contract under a tight deadline may use that pressure as an excuse to leave a disputed provision open to interpretation to meet the deadline. This is risky business - it may lead to controversy down the road. And that dispute may hurt an otherwise positive business relationship between the parties. In my experience, most deadlines to sign contracts are artificial; the most reasonable deadline is the end of a party's fiscal year. Other than that, pricing that is offered on the last day of the month can usually be had on the first day of the new month. And there is usually no rational basis for not continuing the contract's non-price-related provisions after the declared "sunset" date.

Now for true confessions. First, I can't say that, in the interest of meeting a signing deadline, I've never negotiated a contract that contained a deliberately ambiguous provision, but I've always disclosed the situation to my client and received their written consent to accept the risk. Second, on numerous occasions I've pointed out unintentional ambiguities in contracts drafted by the other party. One example is where the contract referenced an exhibit that was not apparently applicable to the deal; I suggested that the incorrect reference be removed (to the relief of the other party's lawyer). I discovered that this courtesy builds trust - and makes negotiating other parts of the contract easier.

And finally an aside about "problem" contractual negotiations - those that are drawn out and acrimonious but finally result in a signed agreement. In my experience (8 times out of 10), even if there are no contractual disputes down the road, the business relationship will be troubled, and one party will usually want to terminate the contract when it expires (or earlier, if there's a basis for that). The parties would have been better off had they never done the deal!