Is no contract better than one you don’t understand?

Odd, to say the least, you may be thinking, for a commercial lawyer like me, who partially makes her living drafting and negotiating contracts, to pen a post with this title? Well, here’s why this is such a serious issue. In my experience, especially when working with clients who have a tight budget for legal

Home » commercial law » Is no contract better than one you don’t understand?

Odd, to say the least, you may be thinking, for a commercial lawyer like me, who partially makes her living drafting and negotiating contracts, to pen a post with this title?

Well, here’s why this is such a serious issue.

In my experience, especially when working with clients who have a tight budget for legal advice, problems and risks often start after the contract has been drafted. The reason for this is that clients may not fully understand their own contracts and haven’t thought laterally or ahead.

Clients tend to perceive contracts, especially where professionally drafted, as set in stone, fixed, and certain. In reality, things don’t always work like that.

There can be a tendency to think “job done, money spent on legals, everything in place” – the shiny new contract, let’s say it’s your business terms and conditions, is printed onto the reverse of  every sales order, so, as a business, you are protected. After all, it was drafted by a good lawyer one who has cost you money and you hope you don’t have to see again for the foreseeable future!

This mentality could also be described as the “filed away in the drawer” mentality.

filing-cabinet3If you don’t fully understand your contract, why each clause is in that contract, and what it means, in practical terms, you can’t use it properly, and are opening up your business to risk. Your lawyer can’t be there to hold your hand every time you need to use the contract or something arises which isn’t covered exactly by the contract.

Thinking, rigidly that, because you have a contract, you are protected, is dangerous. Contracts can easily be varied by conduct, something said, something implied, something that means the contract may have been varied.

No lawyer can honestly tell a client exactly how a court might interpret every single clause, situation or nuance, but the lawyer can explain his or her thinking and the rationale behind the clause and what the risks might be.

It follows that if you don’t really understand your contract, a customer, supplier, business agent or co-shareholder might not understand it either. Or, alternatively, they may understand it much better than you and use that to their advantage.

Who deals with your contracts on a regular basis?

Are you 100% sure, also that you will be the only person in your business with control of the entire contractual process in every case? That would rarely be the case and if so, if you don’t understand your contract, how can you expect your staff to understand it and use the contract correctly? How can you sensibly determine who in your organisation should have authority to enter into contracts for you and/or appreciate risks?

Let’s take a brief practical example

You instruct a lawyer to draft terms and conditions for your business. Your contract says that payment for goods you supply is strictly on delivery and that, failure to make payment on delivery entitles you to terminate the contract and get your goods back immediately. You have a sales team who take orders. They believe, because you have a lengthy, comprehensive set of terms and conditions drafted by experienced lawyers, that that’s all they need to know and rely on. But your crafty customer phones up when goods are delivered and claims that some of the goods aren’t as ordered or that the Finance guy is off sick and the payment can’t be made until next week. Your sales team don’t react properly to this scenario, and you face the position where your business, via your staff, have agree to vary or waive the contract.

This is just a simplistic example of a situation that is very common.

The solution – relationship, education and change of mentality

Avoiding problems with your commercial contracts is achievable by ensuring that you choose a lawyer you trust to work with on an ongoing basis, a lawyer your staff will feel comfortable working with, learning from and calling up if unsure about a situation or issue.

It also necessitates the lawyer recognising that a value added service includes ensuring the client properly understands a contract and it’s implications.

In summary, the best way of working with a commercial lawyer is on an ongoing basis, with regular contact.

 

 

 

 

commercial law • Debbie Serota • Uncategorized

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