Quite often we have clients whose primary goal is to have a contract that is “readable” to the other party, and does not scare them off. This comes up quite frequently with client agreements for businesses we represent, as businesses don’t want to scare or alienate potential clients with a long and inscrutable contract with tons of legalese. This kind of approach often leads to sacrificing protection of a business, and can ultimately result in an ill-suited or even non-binding agreement.
This tension between protectiveness and readability came up recently with a client who was the buyer entering into a purchase transaction. The buyer, our client, had arranged what he felt was a great deal to purchase the remaining portion of a business of which he already owned part. The seller had an attorney prepare an agreement, which I reviewed on our client’s behalf. After our review, it was clear the agreement provided by the seller was not well suited to the transaction and was overly complicated for what both parties were seeking. So instead of trying to rework and condense that agreement, we drafted a new agreement for the buyer. This agreement was much more concise and geared toward the acquisition of a portion of a business by an existing owner, rather than an acquisition of a business by an outsider. But the new agreement still had all the necessary protections for the buyer, including representations by the seller that the seller had disclosed everything in its knowledge relating to the business, including any withdrawals, contracts entered into, debts taken out, taxes being paid, assets acquired, books being completed, etc. as well as promises by the seller that it would not take any course of action in relation to the business, other than in the ordinary course, either before the sale or after the sale, without first seeking approval of the buyer. The agreement also called for the seller to resign from all official positions, help with the removal of his name from all accounts, permits, etc., and no longer represent himself as part of the business at any time. Finally, it included a release, so that each party would agree not to sue the other party for anything that occurred while the seller was involved in the business.
When the final agreement was presented, the seller still had reservations about the agreement. While it was much more concise than the previous agreement, he still wanted it shorter and more “readable”. He suggested removing the “representation and warranty” sections, which related to the seller promising that he had disclosed all information in his knowledge or possession in relation to the business. While my client was so keen to get the deal done that he was considering conceding these important points, after some discussion about how we had reached the point of maximum conciseness and any further cutting would significantly compromise the protections he very clearly needed and wanted, we agreed that the seller should engage an attorney to review the agreement on his behalf (and my client could pay for it, if he liked). Our hunch was that the seller believed that the agreement might be one-sided and that these provisions, because they are protective of the buyer, could be atypical or unfair. Ultimately, after the seller conducted an independent review with an attorney, all parties were satisfied that the contract was fair and protective of both parties, yet at the same time adequately straightforward, so they were able to close the transaction.
The morale is, don’t compromise or sacrifice too many of the protections in the contract for the sake of readability, as ultimately it will not serve the purpose of its design. Working with a party to make sure they understand that the contract is fair and that the provisions contained are necessary, engaging an attorney to review it if necessary, is a much more advisable outcome. While we are always sensitive to readability concerns, and certainly have no intent to alienate a business’ clients or another party, our chief goal is always protecting our client. We can keep things somewhat straightforward, but some “legalese” and protective provisions are necessary to create a solid, binding, and protective contract.