cocktain napkin agreement

Sign on the Line that is Dotted?

So the other day I was at work, reviewing a contract. It was no big deal; a standard form agreement for a venue were renting to host an event in. I wouldn’t ordinarily spend more than a few minutes on such a thing – it’s a one-off deal, less than $20k in value, etc. Not worthy of anything more than a cursory legal review.

But it had a quirky clause that basically said that if anything happened to prevent our event from happening (including things in the venue’s control, or due to their systems, labor relations, etc) our only recourse was to reschedule. That doesn’t work very well you’re setting up an event with out-of-town visitors that must happen on a specific date.

No biggie; I sent the venue an email telling them to cross it out and replace it with a few sentences I quickly ginned up that gave us the right to find alternate arrangements if they couldn’t come through.

OK, they said.  But we need a legal addendum.

Fine, I said – just attach my email to the contract.  Done.

Oh, no, read the indigent email I got back.  We need a LEGAL DOCUMENT.

So I put my email into a document titled “Contract Addendum” and sent it back to them.

What a freaking waste of time and effort.

Because here’s the dirty little lawyerly secret (and in fact it’s so secret many lawyers don’t get it): almost anything can be a “legal document.” Outside of a handful of areas where written documentation is required by law (chiefly real estate transactions and estate planning documents), the relative levels of “legalese” and formality that go into a contract are driven entirely by evidentiary concerns, inertia and ass-covering.

Here’s what I mean: for most transactions, you could rely on a verbal agreement – the quintessential”handshake” deal. Why? Because many deals are simple and straightforward, and most of the time both parties will do what they said they were going to do.

The problem, of course, is that if any question arises about the terms of the deal, you haven’t got anything written down.

So you write it down. This is a critical step. In fact, I’d say that 80-90% of the value of a written contract is obtained by the simple step of writing down the basic terms of the deal. It could be on a cocktail napkin, in an email exchange, or via a simple document. Just having the basic terms on paper, clearly laid out, so anyone can refer to them if they have questions about the parameters of the deal.

Beyond this point is where the legal surplussage starts to kick in. Terms to address incredibly remote contingencies. Ritualistic signature requirements. All things to button up problems that could arise – but doing so in advance extracts a cost.

Like the inanity of asking for “wet” signatures. Requiring a signature at all is simply a method of creating evidence (which will most likely never be used) to prove that your counterparties actually agreed to the terms of the deal.  The bigger or more complex the deal (or the less you trust the other side), the more you want actual signatures.  But do you really need 4 original signatures?  Will a copied version not suffice?

If you don’t have a good answer to this question – and indeed, to the need for any provision in your contracts that may create friction, slow things down, or prevent a deal from being done – you need to ask whether that provision can be excised from the contract.

Too much legal process around routine deals is a bad business practice. Yes, having that belt and those suspenders may buy you some clarity in the once-in-a-blue-moon case where someone claims they didn’t agree to your deal, or where your double-secret indemnity provision comes into play. But this contingent benefit is bought, every time, at a very real cost: it erodes trust with your business partners.  It can crater deals.  And it can make it harder to win follow-on business.

Because after all, the relationship and the deal are what’s most important. And sometimes – hell, most times – a cocktail napkin approach is really all you need.

 

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