Who You Gonna Trust?

I used to use King Arthur organic all-purpose flour for all my baking. Now I use King Arthur only for bread and pizza; for cakes and pastries, I’ve switched to Gold Medal all-purpose flour. Why? Because Stella Parks (@BraveTart) recommends Gold Medal. When it comes to baking sweet things, what @BraveTart recommends, I do, with a salute and a smile on my face.

That’s because Stella is a baking expert, and I’m not. I wouldn’t dream of attempting to replicate the years of research and experimentation that have made her an expert. Instead, I happily rely on Stella’s expertise, although I don’t expect her to be infallible. What convinced me to rely on Stella? Her impressive book, BraveTart: Iconic American Desserts. Her posts at Serious Eats. The success I’ve had in following her recipes. And her fun Twitter feed.

We might not always be aware of it, and it might be out of fashion in some circles, but we rely on experts all the time. We have finite amounts of time, energy, and talent to expend in our lives. We’d rapidly run dry if we aren’t willing to rely on experts.

That of course applies to contract drafting. The whole copy-and-paste engine reflects that building contracts from scratch for each transaction doesn’t make sense and wouldn’t be possible. But with each act of copying, you’re relying on someone.

When you copy something you’ve found online, you’re relying on … well, who knows who you’re relying on. At best, you’re relying on an institution’s reputation. This is an Acme contract! Acme wouldn’t have crappy contracts, would they? Well, actually, they would: I’ve shown time and again that BigLaw contracts and global-company contracts are reliably dysfunctional.

Even if you use a contract prepared by your law firm or law department, it might not be clear who you’re relying on, given that precedent contracts morph over time. The starting point might have been a contract from outside your organization, with further adjustments being made from transaction to transaction.

What if you’re using a contract template offered by a commercial service? You’re likely relying on an unnamed refugee from BigLaw, doing their BigLaw thing. That’s not particularly promising.

When it comes to individual usages, who are you relying on? When during my seminars I ask participants about the implications of a particular usage, usually those who offer their views are hazy as to the source. Someone once told me … I’ve heard that … To rely on conventional wisdom is to rely on no one.

My livelihood is based on my having decided twenty years ago that as regards the building blocks of contract language, no one was authoritative enough for me to be willing to rely on them. Since then, I’ve worked to make myself someone you would be willing to rely on.

What factors might be relevant? Your experience with MSCD? The general reputation of MSCD? My blogging? My marketplace-of-ideas smackdowns? What others say about me? The fact that I do seminars around the world? The shortcomings of other commentators? All that’s for you to decide.

In any event, I hope you’re willing to rely on me as an authority on contract usages just as I’m willing to rely on @BraveTart for purposes of baking cakes and pastries.

The post Who You Gonna Trust? appeared first on Adams on Contract Drafting.

“Compensation” Versus “Remuneration”

Today I tweeted the following:

It prompted the following tweet from the redoubtable @IPDraughts:

Because tackling this requires more than 280 characters, I permit myself to respond on this blog.

As regards compensation, Mark is playing a game I don’t want to be caught playing, namely “My meaning is better than your meaning!” In fact, Black’s Law Dictionary offers as definitions of compensation both meanings that Mark alludes to:

compensation (kom-pən-say-shən) n. (14c) 1. Remuneration and other benefits received in return for services rendered; esp., salary or wages.

2. Payment of damages, or any other act that a court orders to be done by a person who has caused injury to another.

I gather that compensation is mostly used in England to express only the second meaning. But given the promiscuous exchange between American and England, I suggest it would be rash to expect the English understanding to prevail in a given context. Mark pointed me to the following exchange in this 2010 article in The Lawyer about the meeting of American and English cultures at Hogan Lovells, and I think it makes my point for me:

Still, the Americans have won the first lexical battle. Asked about remuneration generally, Harris checks himself. “Oh, we don’t say ’remuneration’ now,” he says, as Gorrell nods in agreement. “We say ’compensation’.” Quite why ’remuneration’ has become a non-word within Hogan Lovells is difficult to work out, but the following day The Lawyer gets some ­clarification. Apparently it boils down to ­accepting the American term, which is “more widely understood as a term around the world, not just in the US”.

You might think I’d be in favor of promoting use of remuneration to express the first meaning and compensation to express only the second meaning, so as to avoid confusion, but in fact I’m not so inclined. The alternative meanings of compensation don’t worry me: unless you’re particularly clumsy, the context in which you use the word compensation would make it clear which meaning you intend the word to have: you should always refer to compensation for something or other.

This ties into my aversion to unnecessary terms of art. Here’s what MSCD 1.11–.12 says:

Lawyers are prone to using doctrinal terms of art in contracts even though simpler terminology is available, rendering those terms of art unnecessary.

For example, in a security agreement, why use hypothecate regarding a security interest? Why not simply use grant? Hypothecate means to pledge without delivery of title and possession. That meaning goes beyond the function required of the verb in language granting a security interest. And that meaning isn’t otherwise necessary, as the security agreement itself will specify what the terms of the security interest are. Hypothecate might have value as shorthand for court opinions or scholarly texts, but that’s very different from what’s required for a contract. Using grant in granting language in a security agreement wouldn’t prevent that grant from being a hypothecation, if the remainder of the granting language is consistent with that meaning. If it isn’t, using hypothecate instead wouldn’t fix that.

In other words, say what you mean to say without relying on the reader to read into your choice of words distinctions of varying levels of obscurity.

It’s just as well that I’m OK with using compensation to express both meanings: I wouldn’t hold out much hope for rehabilitating remuneration, which sounds fuddy-duddy to Americans. I don’t recall encountering it outside of a formal legal document. And it’s not that common in U.S. contracts: only 341 contracts filed on EDGAR in the past 30 days contain the word renumeration.

An Efficient Way to Link Statements of Fact to Termination Provisions

In recent consulting projects I’ve found myself revising client contracts that address issues as both statements of fact and grounds for termination, as in this made-up example:

Widgetco states that the Widgets are in good working condition.

Acme may terminate this agreement if the Widgets are not in good working condition.

My book The Structure of M&A Contracts (here) discusses how to make statements of fact and obligations in an M&A contract flow efficiently through the rest of the contract. Inspired by that, I’ve found myself experimenting with the following sort of provision as an alternative to saying the same things twice in commercial contracts:

If one or more of the following occurs, Alpha may by notice to Baker terminate this agreement , with termination occurring ten days after Baker receives that notice:

a statement of fact made by Baker in this agreement could not be made again on any date after the date of this agreement without being materially inaccurate[, except that if Baker is capable of remedying the circumstances causing a statement of fact to be materially inaccurate, then Alpha shall not terminate this agreement in accordance with this clause X unless Alpha notifies Baker of those circumstances and Baker fails to remedy those circumstances no later than 10 days after Apha so notifies Baker]; …

What do you think?

When Litigating Confusing Contract Language, It’s Best to Have a Frame of Reference (Featuring “Stepped Rates” and “Shifting Flat Rates”)

During my blogging-in-my-bathrobe years, I entertained myself by trawling on Westlaw for court opinions dealing with confusing contract language. Good times.

In a fit of nostalgia, this evening I went back to Westlaw and entered a search, saying to myself, Yes, I can still do this! But I’d obviously lost my touch, because I forgot to limit my search to recent cases, so the first case I looked at was Tennessee Excavating Co. v. Morrison-Knudsen Co., No. 01-A–019201CH00010, 1992 WL 113426 (Tenn. Ct. App. May 29, 1992) (PDF here). It was a serendipitous mistake, because it offered the first-ever example I’ve encountered of a dispute over whether a fee schedule involved stepped rates or shifting flat rates.

“Whether a fee schedule involved what?” I hear you say. If you’re not familiar with those terms, it’s because I invented them, having never seen any discussion of the related ambiguity. (To name something is to bring it into existence.) I haven’t done a blog post about the distinction between stepped rates and shifting flat rates. It’s discussed in the fourth edition of MSCD, at 14.64–.70. Paragraph 14.66 will give you a taste:

But this schedule is ambiguous. If the annual gross revenue is $3.4 million, it’s not clear from this schedule whether the 8% rate is applied to all gross revenue (this manual refers to such a rate as a “shifting flat rate”) or only revenue over $3 million, with the lower rates being applied to the increments of revenue under $3 million (this manual refers to such a combined rate as a “stepped rate”).

It’s good to be able to point to an instance of every kind of ambiguity I write about, so I’m pleased that I encountered this opinion. But that’s not why I’m writing about it.

Instead, I noticed that, unsurprisingly, the Tennessee Court of Appeals didn’t mention stepped rates and shifting flat rates in holding that the contract was unambiguous. Instead, it blundered through an analysis that didn’t make sense to me.

One thing MSCD stands for is that if you try to make sense out of contract language that is, or might be, ambiguous and you have no experience with the subject, don’t be surprised if you fall flat on your face. By contrast, anyone familiar with MSCD who is presented with the dispute underlying Tennessee Excavating Co. would understand what’s involved by flipping to the relevant part of chapter 16. And MSCD would provide a frame of reference for explicating the dispute to others, whether in an opinion or a brief.

That’s why judges and litigators who handle contract disputes would benefit from becoming acquainted with MSCD. The foreword to the fourth edition by Vice Chancellor J. Travis Laster of the Delaware Court of Chancery (here) might help spread the word. And so might appellate guy Jason Steed’s recent review of the fourth edition (here).

And obviously, contract drafters too would benefit from being able to distinguish between stepped rates and shifting flat rates.