This article briefly surveys the ever-expanding literature on business and finance with the goal of helping you discover those books that best provide an awareness and familiarity with those aspects of the business world most relevant to your future (or current) practice.

The article is in five parts. In the last segment, part V, he suggests “several skills-oriented books on negotiation and drafting.” Let’s now look at that discussion. (I omitted the citations.) The numbers in brackets refer to my annotations, which follow the extract.

In terms of contract drafting, I am sad to report that there is nothing on the market that is remotely equivalent in quality or general relevance to the literature on negotiation.[1] Probably, this is because the real art of contract drafting lies not in word choice or sentence structure, but in issue spotting and risk allocation. No matter how well an agreement is crafted in terms of language and clarity, it is worse than useless if it omits treatment of critical issues.[2] Moreover, careful writing can even be counterproductive if the result is to re-draft language that has been previously interpreted by a court as having a particular meaning. Ironically, in such a case, changing the words—even for the better—can only increase uncertainty.[3]

Treating contracting as a language art also misses the essential element of plagiarism[4] inherent in the drafting process. Once a contract drafter has identified the issues to be addressed, her next step is commonly to search her own files, or possibly her firm’s files, for sample language that has been used successfully in the past to address similar issues. Even better, she may peruse the catalogue of “material contracts” that all public companies must file with the SEC and that is available via its online EDGAR database. By taking the latter route, she can access the latest industry-specific and market-tested responses to common issues.[5]

Given the nature of drafting, then, the best books for the drafter are probably those that are specific to particular areas of law. For example, famed deal lawyer James Freund’s Anatomy of a Merger describes each major provision of an acquisition agreement, line-by-line, presenting not only the issues raised but the common positions taken by both buyer and seller. Though dated, this volume remains essential reading for any serious M&A attorney.

Meanwhile, the American Bar Association has taken Freund’s approach one step further by institutionalizing it in a committee. The forerunner of the Committee on Mergers and Acquisitions has begun publishing excellent model merger, stock purchase, asset purchase and other agreements. Each not only identifies sample language and the issues such language is intended to address, but how each provision in the contract can be tailored to the interests of the buyer or seller. As a result of their provenance, these model agreements have the potential to define “standard” contract terms and so serve as the starting point for many future negotiations.[6]

Annotations

1. I think Professor Illig’s gloom-and-doom is unwarranted. Has he heard of A Manual of Style for Contract Drafting? And doesn’t the valuable Negotiating and Drafting Contract Boilerplate merit a mention?
2. If I were paranoid, I’d assume that he is aware of MSCD and that these two sentences are his way of saying, “Ken, with your word-choice prissiness and your endless bleating about language and clarity, you don’t come close to the ‘real art’ of contract drafting.” My response would be as follows: “Rob, contract content consists of what you say and how you say it, with the two overlapping. (How you say something has a funny way of changing unexpectedly what you say.) Sure, getting the terms of the deal right is essential, but if any drafter thinks that rigorous command of the building blocks of contract language is beneath them, they and their clients are in for a world of hurt. My writings provide extensive evidence on that score.”
3. Ah, that canard, the notion of “tested” contract language. It sounds plausible in the abstract, but I recall only a couple of instances of my having to recommend that you stick with suboptimal language so as to avoid confusing the courts. Otherwise, I have no trouble achieving my goal—recommending usages that are clearer than traditional usages while allowing you to avoid dispute. And there’s something paradoxical about sticking with language that was so unclear that the courts had to step in to say what it means.
4. Plagiarism has no bearing on copying contract language—no one would ever suggest you have to give proper credit when you use copied contract language. But copyright is an issue; go here for my article on the subject.
5. The quality and relevance of contracts on EDGAR is, to put it politely, mixed. Browsing on EDGAR is like roaming a giant flea market. Anything useful I’ve found on EDGAR has needed significant surgery.
6. I think there’s room for a more critical assessment of the ABA model contracts than that offered by Professor Illig. For a different approach to M&A drafting, he could check out my book The Structure of M&A Contracts.

So any nonlawyer who wants to use Koncision might well benefit from a lawyer’s input. In this 2011 post I describe how a lawyer might help a nonlawyer with the template process.

Koncision could facilitate such cooperation by maintaining a list of lawyers willing, without charge, to help nonlawyers—presumably fledgling entrepreneurs—create a confidentiality agreement using Koncision’s template.

It’s clear what would be in it for nonlawyer users. What would be in it for lawyers who help them? Well, creating a confidentiality agreement is often a preliminary step to a bigger transaction, so doing some up-front work for free could well make sense. And it’s unlikely that anyone on a tight legal budget would be willing to pay a lawyer much, if anything, for helping with a confidentiality agreement, so any lawyer helping out a nonlawyer probably wouldn’t be missing out on paid work from that nonlawyer.

Furthermore, a nonlawyer would have to be pretty serious to want to use Koncision. That perhaps increases the odds that helping someone with Koncision could lead to a paid engagement down the road.

The list I have in mind would provide the name, firm affiliation, city, state, and email address of each lawyer, as well as a link to an online bio. I’d make it searchable. I’d allow myself to exclude any lawyer from the list if I don’t think they’re plausible, but I wouldn’t be vouching for anyone included in the list.

So, what do you think? Is this a worthwhile idea? If you’d like to be on the list, click here to send me an email. (Obviously, you shouldn’t take part unless you’re willing to become familiar with the questionnaire.) I wouldn’t put the list up until I have at least thirty lawyers who want to participate, and I’d circulate the list before posting it, to give everyone a chance to change their mind. For now, I’d limit the list to U.S.-based lawyers.

Once the list is up, I’d increase my efforts to spread awareness about Koncision in the entrepreneur community. I think that having readily accessible legal talent would make Koncision’s template more compelling to nonlawyers.

Once again, I plan on closing out the semester with a drafting, or redrafting, project for a not-for-profit organization. The idea is that we’ll work on a contract, or part of a contract, for whichever organization is selected, then we’ll hold a meeting or conference call with personnel from that organization to discuss what we did and why, and what works and doesn’t work. For more details, see this post about last year’s project.

In previous years we’ve worked with the Breast Cancer Research Foundation, the World Wildlife Fund, and Big Brothers Big Sisters of America. I think these projects have proved worthwhile for all concerned.

So if you think that your not-for-profit organization might want to take part, please email me.

I find myself revisiting a favorite topic: stating in a contract how a nonparty is to act. (That something I explored most recently in this post about shall require.) Consider the following examples and the accompanying annotations:

• Each Acme employee shall enter into a confidentiality agreement with Acme in the form of exhibit 2. [No: It doesn't make sense to impose a duty on a nonparty.]

• Each Acme employee will enter into … . [No: Using "will" suggests that this is language of policy, that each employee will automatically enter into a confidentiality agreement.]

• Each Acme employee must enter into … . [An improvement, in that it states an obligation without imposing a duty. But implicitly the obligation is actually imposed on Acme—why not make it explicit? Oh wait—maybe this states a condition that Acme must satisfy. So there's plenty of room for improvement.]

• Acme shall cause each Acme employee to enter into … . [Unlike, say, wholly owned subsidiaries, individuals are possessed of free will and so can't be instrumentalities of others, so this doesn't make sense. Acme can't make employees enter into a confidentiality agreement. Instead, all it can do is ask them to and fire them if they refuse to.]

• Acme shall require each Acme employee to enter into … . [Aside from exhibiting the same shortcoming as "shall cause," this is unclear, as it could be read as suggesting that Acme has a duty to impose on each Acme employee a duty to enter into a confidentiality agreement.]

• Acme shall ensure that each Acme employee enters into … . [Aside from exhibiting the same shortcoming as "shall cause," this is too genteel, and not specific enough.]

• Acme shall enter into a confidentiality agreement in the form of exhibit 2 with each of its current employees, unless any one or more current employees refuses, in which case Acme shall terminate those one or more current employees. Acme shall not hire as an employee any person who does not enter a confidentiality agreement with Acme in the form of exhibit 2 as a condition to becoming an Acme employee. [My initial version of this didn't include the "unless" clause, but westmorlandia's comment showed me the error of my ways: without the "unless" clause, imposing on Acme an obligation to enter into a confidentiality agreement with each employee is functionally identical to imposing on Acme an obligation to "shall cause" each employee to enter into an employment agreement. But this version is way too cumbersome.]

• Acme represents that it has entered into a confidentiality agreement in the form of exhibit 2 with each of its current employees. Acme shall not hire as an employee any person who does not enter a confidentiality agreement with Acme in the form of exhibit 2 as a condition to becoming an Acme employee. [I think this is the most realistic option.]

Consider the following, culled from the SEC’s EDGAR system:

The Parties believe that the provisions of this Agreement are in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), as presently in effect, if and to the extent that such requirements apply.

The Settling Parties believe that it is critical to maintain customer service levels while merger efficiencies are being achieved; that any merger-related workforce reductions should be shared equitably across the several states in which the utilities operate, and that post-merger utility reporting should meet high standards of accuracy.

None of the Parties believe that it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by any of the Parties.

For avoidance of doubt, neither of the parties believes that the Executives provision of services to the Company pursuant to this Agreement would result in any meritorious legal proceeding.

Let’s consider these examples in turn.

I suggest that the first example constitutes yet another  previously unidentified category of contract language—language of belief. (Incidentally, Neither party believes that X is Y is equivalent to The parties believe that X is not Y.) You can add language of belief to language of agreement, performance, obligation, discretion, prohibition, policy, declaration, and two other recent additions, intention and recommendation. (Of course, there’s also the related concept of conditions.)

Language of belief fills a gap that’s apparent from the comments to my post on language of intention. An alternative to the language of intention I propose in that post (The parties intend that the Consultant will be an independent contractor) is language of belief (The parties believe that the Consultant will be an independent contractor).

Both language of belief and language of intention relate to matters of law—matters that depend on actual circumstances rather than on what the parties say in a contract. I suggest that language of belief is appropriate if the circumstances are apparent when the contract is signed, language of intention is appropriate if the circumstances are subject to change during performance of the contract. Given that the consultant scenario involves an ongoing relationship, I suggest that language of intention is more appropriate.

Although the three other EDGAR extracts use the verb believe, they don’t constitute language of belief.

The second seems to express what the parties had in mind in entering into the contract. As such, it should go in the recitals, where it would be beyond the reach of “categories of contract language” analysis, which applies only to the body of the contract.

In the third and fourth, instead of referring to belief I’d use to the parties’ knowledge—the uncertainty seems to derive from limited access to facts rather than from the issue at hand being a question of law.

This is brand new, so I’d appreciate your thoughts.

Youst (the husband) was required to pay Wells (the wife) alimony until, among other events, she returned to work “on a full-time basis.” Wells got work as a contract attorney, so Youst sought an order declaring that he no longer had to pay alimony. The trial court found in favor of Youst.

Here’s how the appellate court summarized the arguments (citations omitted):

There appears to be no common definition of “full time,” and the divorce decree is silent as to what the parties intended. Under Youst’s interpretation, Wells’s first week of billing forty hours implicated termination of the alimony provision. Wells argues that her return to work on a full-time basis has meaning only if the word “basis” is given meaning beyond a single forty-hour week. Under the labor code definition urged by Youst and under other Texas statutes, the term “full time” is used in conjunction with “employers” and “employees” and may include benefits such as vacation. The decree contains no other mention of employment on a “full time basis.” The only other reference to “employment” is a requirement that Youst furnish health and dental insurance for the parties’ child “through [his] employment.” “Through employment” is defined to mean “through the party’s employment or membership in a union, trade association, or other organization.” This definition provides no further assistance in our attempt to harmonize all provisions of the decree to determine the parties’ intent as to the disputed language.

In sum, the language in the divorce decree relating to Wells’s return to work on a “full time basis” cannot be given a certain and definite meaning, and we cannot determine the true intentions of Youst and Wells from the expression in the writing itself. We also conclude the language is susceptible to more than one reasonable interpretation. Accordingly, the contract is ambiguous, and a fact issue exists as to the parties’ intent. The trial court therefore erred in granting summary judgment in favor of Youst, and the case must be remanded for a new trial.

So whatever the context, you should consider being specific as to what “full time” means. But in my persnickety way, I’m not sure that “full time” is ambiguous—it doesn’t offer distinct alternative meanings. Instead, I think it’s unduly general. (This is a nuance I discuss in chapter 6 of MSCD.) But I’ll chew it over some more.

Incidentally, this reminds me of my 2011 post on the phrase “at any time during my employment” (here).

The only part that caught my eye involved the following provision:

Discretionary Performance Bonus. Employee shall be entitled to participate in the Company’s annual discretionary bonus program, which shall have a target range of up to 50% of Employee’s Base Salary based on milestones to be mutually agreed on between the Compensation Committee and the Employee and prior to the beginning of each bonus period. For the first year of the Employment Period, Employee shall receive a minimum bonus of 30% of the Employee’s base salary, which bonus shall be paid no later than thirty (30) days after the first anniversary date of the employment period. After the first year of the Employment Period, the Employee shall not be entitled to a minimum bonus amount.

The employee argued that he was entitled to a 30% bonus for 2008. AVAX, on the other hand, argued that this provision “only provides that if plaintiff was awarded a bonus for 2008, such bonus would be at least thirty percent of his annual salary,” and so “plaintiff’s 2008 bonus was not guaranteed, and he is not entitled to any bonus for 2008.”

The court decided that this provision was ambiguous, in that it “could support both parties’ interpretation.” Me, I would have decided this aspect of the dispute in the employee’s favor—there doesn’t seem anything ambiguous about “Employee shall receive a minimum bonus of 30% of the Employee’s base salary.” (Although I would have made the Company, and not the intended recipient, the subject of the sentence.)

Sure, the bonus program as a whole was discretionary, but the parties could have intended that the first year not be discretionary.

Nevertheless, this dispute represents a failure of drafting.

To articulate the meaning advanced by AVAX, the provision would have had to have been drafted very differently, along the following lines: “If the Company decides that Employee is entitled to a bonus for the first year of the Employment Period, that bonus must equal no less than 30% of the Employee’s base salary.”

If instead the intended meaning was that advanced by the employee, it should have been expressed in a way that precluded any argument.

An exhibit might consist of a form of noncompetition agreement that’s to be entered into at closing, or a copy of Acme’s articles of incorporation. A schedule might consist of a list of Acme’s pending litigation, or a list of Widgetco’s trademarks.

I know that other jurisdictions use other terminology. For example, I’ve been told that in Australia, annexure is used instead of exhibit.

I’d like to include in the third edition of MSCD an account of international attachments terminology, so I invite you to let me know in the comments what the practice is in your jurisdiction.

each of the Guarantors hereby … commits to make a contribution to such Guarantor’s capital in an amount at least equal to

The Employee commits to perform his/her duties pursuant to this Agreement on full time basis and not to engage in any other endeavors without the express permission of the Board of Directors of the Employer.

In connection with the Leawood Settlement Agreement, Cohen agrees and commits to pay all of Alesco’s legal fees …

So add commits to to the list of verkakte ways of expressing obligations.

And shall not commit to is used as a clumsy alternative to shall not agree to:

No Company shall make or commit itself to make any Restricted Payment at any time, except that…

Thanks to reader, I learned about a case, Olympus Ins. Co. v. Aon Benfield, Inc., No. 11-CV-2607 (D. Minn. March 30, 2012), in which the court came to essentially the opposite conclusion, due to nuances of contract language. (Go here for a copy of the opinion.)

A provision of the contract between Olympus and Benfield referred to “any decision by [Olympus] to terminate or replace Benfield as its reinsurance intermediary-broker for any portion of the Subject Business.” The court held that this provision applied to Olympus’s decision not to renew the contract with Benfield.

The court’s decision makes sense, but this case has to be considered a less-than-ideal outcome for Benfield, at least with respect to this part of the dispute—prevailing in litigation is a distant second to avoiding litigation entirely.

To preclude any debate over this issue, the drafter should have used consistent terminology, by using the word “termination” or “terminate” in all contexts or adding “not renew” to the provision quoted above, or by citing appropriate section numbers.