Effective Agreements' Blog

Commercial Contracts - Why the Confusion?

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Commercial Contracts: The Confusion

Having worked with dozens of companies over the last ten+ years, I have found that even simple commercial agreements cause fear and trembling because the "C" level executives do not understand them. Why should that be the case?

• Attorneys do not take enough advanced English courses in school. No, I am neither kidding nor being facetious. The point of a commercial agreement is to state everything so that the meaning is crystal clear to everyone. That discipline is learned in higher level English classes. My approach originates in equal parts from working with other agreement experts (attorney and business people) and from the incredible pressure put on me by a Rice professor to write (and re-write) a final paper on Victorian Poetry (Tennyson, if you must know.)

• The last I looked, “B Schools” did not require courses on contracts. Hopefully I am outdated.

• The CEO or CFO have never had the time to study and understand the language of even the most basic document, nor have they had anyone available to explain them.

• While Amazon has plenty of books on contracts, and some of them must be effective and readable, the usual CEO and CFO have imited reading time and will choose topics they see as more relevant.

 Errors When the Business Person Drafts

Some of the most common mistakes I see when business people do their own drafting:

• Inconsistent Terms. In one section it's a Widgit (capitalized as if its a defined term) and later its a Device, and finally it's a “4G smart phone application”. Here are the rules: (a) describe it completely and clearly once, creating a capitalized, defined term, then (b) only use that defined term from that point on.

• Jargon. I have never had a principal yet who did not use a lot of jargon, which, in its place is fine. The problem arises when it is used in the commercial contract when there is no need, or when a simpler term can be clearly defined and used.

Business people should not be afraid of commercial contracts; it is not a good business practice. Both the drafter and the reader can do a lot to make the process less painful.