What Business Law Attorneys Think About When They Draft Contracts

A call I frequently receive goes as follows: “Me and so-and-so have agreed to such-and-such. I need you to write a contract to make it legal.” In this post, I will make a point about the role of written contracts and about the role of legal counsel in making them—both to clear up obvious misconceptions that are inherent in this sort of request.

First, you don’t need a written contract to have a contract.

With just a few exceptions, if two or more parties make an agreement that involves any mutual exchange of promises to do or not do something, they have a contract. Even without a writing, if you complete your promised performance under an agreement and the other party does not complete theirs, you can sue for damages. So, when Dillards accepts $75 from you in exchange for a dress shirt, they have entered into a contract with you to give you ownership of that shirt—ownership that was once theirs. If they take your money but refuse to let you leave the store with the shirt, you wouldn’t need a written contract to recover in court the amount of money you paid.

Second, my primary job as your legal counsel is not simply to write each party’s performances, but a much harder and more important job—to protect you if your deal goes wrong. Most people enter deals with rosy-eyed enthusiasm, and simply want words on a page that reflects what the parties will “do.” But in the real world, things go wrong. Shipments run late. Houses burn down. Reputations are ruined. Promises that were never made are suddenly remembered. Standard terms in order forms differs from the terms in the shipping invoice. Companies that owe money go insolvent. Third parties make claims to property sold to you. Unexpected events make the deal unprofitable. Unexpected events prevent you from performing.

If these things and hundred others didn’t happen, there would be little reason to hire legal counsel for your contract. Yes, contracts specify the performances of the the party (the things the parties tangibly “do”), but my primary job as your legal counsel is risk allocation.

Risk allocation is what attorneys think about when they draft contracts. Every line of every contract allocates risk to one party or another.

I make sure that you have adequate remedies in the event the other party fails to perform. I make sure that you have adequate remedies when an important thing that the other party claims is true turns out not to be true. I make sure arbitrary procedural barriers will not prevent you from obtaining those remedies. I make sure that the other party warrants facts that you are relying on to be true. I make sure that events of default are precisely described so the other party cannot arbitrarily declare you to be in breach of the agreement. I make sure that it is clear what you are not expected to do. I make sure it is clear what facts you are not promising to be true. I make sure the other party doesn’t reserve remedies for themselves that are unlawful or not fair to the agreement (this is common in landlord-tenant agreements). I make sure you will not be penalized for things that are not your fault. I make sure that if you have no choice but to breach the agreement that you will not be liable for any more than you should be.

And many, many other things.

These things are mostly about risk, not simply performances. Attorneys who draft contracts are trained to advise clients about what can go wrong and to craft deals that reflect levels of risk that clients find acceptable. WFP_0319

If you need an attorney who can draft contracts for your business or personal agreements, please call my office at 1-501-777-7777.