Theme: Institution

WHY ARE CONTRACTS A MESS?

0) Reality: all contracts are just form letters with names and dates in them. All that changes is the list of assets, and the rights and obligations of both parties – and mostly, it’s the obligations for both parties, ’cause rights only exist if the contract fails. The courts have spent decades since the rise of text databases in the 80’s making sure that there is settled law for almost everything you can bring before it – so much so that the only job left in court is who either (a) lied, or (b) failed due diligence (c ) sought an unearned premium at the other’s expense.

1)Surprisingly lawyers are taught contract law, not how to write contracts. And they will write for other lawyers most of the time, sometimes for in-house counsel, other times for skilled people, and otherwise for ordinary citizens. So absent this they learn to write contracts by the cut-and-paste method of contract development. So contracts accumulate ‘waste’ so to speak in most offices. They don’t accumulate solutions to problems.

The courts (federal, state, local) do not put out standard contract formats that force what’s called “transactional” work into standard form. When in reality, the law does not grant much flexibility in these matters.

Terms of art are largely bullshit claims. Judges are not stupid. Jurors are not stupid.

The reality is that contracts are not complicated. My particular ‘thing’ is shareholder agreements. They don’t have to be complicated. They have to hit al the points in simple language. All contracts are like this, if (a) definitions are put on a separate page, (b) the before-and-after diagrams are displayed in visual form, ( c) a project-plan for signing the agreements in the appropriate sequence and the purpose of each one is stated in that plan (document), that states the title or interest change it enacts. (think of it as an accounting transaction with ledger entries). (d) each section includes a whereas “this is what we seek to accomplish” and therefore the terms of the contract in legal prose. (lawyers will resist this because it prevents people from pulling shit out of thin air, but that’s exactly why to do it.

And this is the most simple – just capture the bullet list of concerns from everyone involved and make sure you’ve resolved them satisfactorily for all parties.

And this is the most uncomfortable: Those engaging the contract do not inform the lawyers of the full suite of advantages that may arise from the deal, and the lawyers do not list all the reasons that they think the contract (arrangement) will fail.

Truth: I generally have to tell lawyers to let me manage risk (that’s my job as a business person) and you create the level of contract suitable to my target risk. This is how you ‘Price’ a contract so to speak. By risk reward and resource expenditure *your time*.

2) Current legal training is antithetical to business, because it begins as teaching the adversarial method – it does not teach means of reaching compromise, settlement, or methods of cooperation that must adapt to changing circumstances. This leads people in defense to ‘double down’ on conflict rather than double down on compromise. This is not how business people resolve conflicts. So really there are two stages. the ones exterior to the contract, and the terms that will fight before the court if the contract fails. My understanding is that this is a problem of failing to require via positiva statements of intent for every via-negativa bit of blame. In other words contracts do not spend time on the via positiva means of settling error, failure of due diligence, change in circumstance.

3) The legal teams try to add unnecessary value to justify jobs (this is endemic). I see this all over the place. The problem is malincentives in legal fees: especially hourly. The problem is revenue constraints. In other words we have too many lawyers, working too hard, to drive up fees, and a court that doesn’t stop it, and a population that has no choice.

4) Courts work too often by win/lose instead of proportional settlements. This is partly by design to force settlement prior to court, and then turning the courtroom into a lottery of uncertainty, where the outcome is worse than settlement – it is not what the framers or common law judges in history intended.

5) Irreciprocal competency and scale of legal teams means they compete for providing opportunities for advantage rather than due diligence in preventing advantage.

6) systemic abandonment of moral norms has led to the need to articulate what was normative in law.

7) the law is lagging behind the rate of evolution of the complexity of contracts.

8) The law does not prevent entrapments as it used to, because it defers to the wisdom of business people (good) but not to baiting into hazard.

9) Law does not punish (as it used to) abuses of the court, the law, the contract so it is worthwhile for full time legal teams or lawyers to bill by the hour to use the economics to drive a settlement or court decision.

That’s just the surface.