Demystifying Legalese in Contracts, Part I

Demystifying Legalese in Contracts, Part I - BusinessWeek

Demystifying Legalese in Contracts, Part I

Posted by: Nick Leiber on August 17

This is a post by guest blogger Jonathan I. Ezor.

jonathan_ezor.jpgOne of the complaints frequently leveled against attorneys is that they speak, and write, a language foreign to all other people: legalese. This tongue, filled with words and phrases like “heretofore,” “hereinafter,” “notwithstanding the foregoing,” “including but not limited to” and “except as otherwise provided herein,” is most commonly seen in contracts, and seems to be best expressed in

very tiny letters.

The phenomenon causes most businesspeople, and even many other lawyers, to give up before ever trying to understand what the contract says.

This is extremely unfortunate and wrong, since a "contract" is also an "agreement," which means that the parties who are actually bound by it are supposed to agree to its terms, which really requires understanding them. The best contracts lawyers are actually good writers, able to turn a variety of business points into a single, comprehensible and consistent document. While there are some words that have specific legal meaning and need to be included in a contract ("warranty," for example, rather than simply "promise"), the rest of the language should be understandable to everyone involved. If the client can't read a contract and figure out what it means, it's a bad contract. Worse still, vague language will more likely lead to a lawsuit than do clear provisions, since misunderstanding is a frequent driver of disputes.

While all attorneys should strive to be better, clearer writers, there are other things that also can help make legalese more understandable to businesspeople. The next few articles in this blog series will be dedicated to demystifying typical contract provisions, using a Web development agreement (a frequent source of misunderstanding and conflict) as a model.

From warranties and representations to indemnification to the specifications to termination and beyond, the goal is to help turn the contracts readers get (and give) in business from gobbledegook into guideposts.

For starters, consider a provision often buried in the "Miscellaneous" (which many translate as "skim or even ignore this") section of a contract: the choice of law and forum clause. It usually looks like this:

This contract and any disputes hereunder shall be governed by the laws of the State of New York, excluding any principles of conflicts of laws. The exclusive forum for any disputes hereunder shall be the state and federal courts in the City of New York, State of New York.

There are two important pieces here. The first tells you which laws will be used to explain and interpret the contract, in this case New York's. The "excluding any principles of conflicts of laws" part avoids the logic puzzle caused by looking at New York law about what law applies to a contract: "New York law is supposed to apply, but New York law says that this contract should be governed by Texas law because the two parties are in Texas, but the contract says that New York law is supposed to apply, but..." Most states' laws are fairly similar, but you should still ask your lawyer if one or another has some unforeseen landmines (often regarding consumer or employee protection) that makes the choice troublesome.

The second piece, though, is almost purely strategic: where do disputes get heard? The short answer is often, "in the city where the more powerful party is located." Why? So that, if the parties are in different locations, the one with the power will find it much easier to bring a lawsuit than will the other. Consider if Fredco is in New York and Murrayco is in Los Angeles, and they sign a contract with the New York forum language. If Fredco cheats Murrayco, Murrayco will have to find a New York lawyer, travel to and stay in New York, and lose the services of any Murrayco employees in New York if it wants to sue Fredco. By contrast, Fredco's general counsel can hop on the nearest subway down to the courthouse and sue Fredco, forcing it to come East to defend itself. A New York forum is clearly better for Fredco than Murrayco.

What can Murrayco (or your company) do when faced with a far-away forum demanded by the other side to a deal? One productive approach is to propose the following alternative:

The exclusive forum for any disputes hereunder shall be the state and federal courts nearest the party against whom the dispute is brought.

In other words, if Fredco wants to sue Murrayco, it has to go to Los Angeles.

For Murrayco to sue Fredco, it must come to New York. Equal disincentives to sue, equal encouragement to settle, and it's very difficult for Fredco's lawyer to reasonably object to the suggestion.

The next blog will demystify one of the most important, and least clear, portions of most business contracts: the warranty provision. If you have suggestions for provisions you would like demystified, please feel free to e-mail your ideas.

Jonathan I. Ezor is the director of the Touro Law Center Institute for Business, Law and Technology, and an assistant professor of law and technology. He also serves as special counsel to The Lustigman Firm, a marketing and advertising law firm based in Manhattan. A technology attorney for more than 15 years, Ezor has represented advertising agencies, software developers, banks, retailers, and Internet service providers, and has been in-house counsel to an online retailer, an Internet-based document printing firm, and a multinational Web and software development company.