THE INSIDE SCOOP > What New Lawyers Want to Know
WRITE TO US > This is a new semi-regular column, developed in collaboration with members of the Washington Young Lawyers Committee (WYLC), in which experienced practitioners will answer questions from those new to the practice of law. Submit your questions to wabarnews@wsba.org or anonymously here: https://forms.gle/ZNsubS1C9LFATyTC9.
BY JOEL MATTESON
Q: I feel like contracts class in law school didn’t prepare me for the actual issues that get focused on in commercial contracts (indemnification, insurance, limitation of liability, etc.). What is the best way to buff up on these issues to competently represent my client?
A: Broadly speaking, attorneys are either “transactional,” “deal-making” lawyers or they are litigators. Litigators tend to encounter contractual issues downstream, during litigation, whereas deal lawyers work upstream, grappling with issues before they occur, during the contract-drafting stage. The sidebar to this article contains a collection of practical resources recommended in response to the question of how to “buff up” on contract-drafting issues.
Taking a step back from the nitty-gritty of drafting contracts (but not as far back as the law school classroom), lawyers of all stripes will benefit from reflecting on the multiple roles and necessary skills of the contract drafter.
The Contract Drafter as Advisor and Advocate
The practice of law includes the “selection, drafting, or completion of legal documents or agreements which affect the legal rights of an entity or person(s).”11 Washington General Rule 24(a)(2). Lawyers who draft contacts are not, however, mere scriveners. In fact, allowing oneself to serve as a mere passive conduit of information may implicate the duty set forth in Washington Rule of Professional Conduct (RPC) 2.1 to “render candid advice” with respect to the representation. The ethical deal lawyer uses the contract as an opportunity to render substantive legal advice and fulfill ethical responsibilities, such as communicating and diligently advancing the client’s interests.
In rendering candid legal advice, the contract drafter must always remember who decides. RPC 1.2(a) provides that “a lawyer shall abide by a client’s decisions concerning the objectives of the representation and, as required by RPC 1.4, shall consult with the client as to the means by which they are to be pursued.”
RPC 1.4(b) requires the deal lawyer to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” The conscientious transactional lawyer uses the contract-drafting process as a tool for rendering advice to the client about the deal and its ramifications. To “permit the client to make informed decisions” requires discussing issues raised by the proposed deal and contract edits, and using the contract as a primary forum for memorializing how these issues are addressed.
Ethical contract drafting and review under RPCs 1.3 (diligence) and 1.1 (competence) suggest that a lawyer should provide active feedback and due diligence to ensure both attorney and client understand (a) the business deal; (b) the goals of the representation; (c) relevant challenges and issues pertaining to the proposed agreement; and (d) how the client’s interests are protected by the agreement. The contract is not only a substantive document that creates private law among the parties but often is the very means by which the attorney fulfills her ethical obligations.
The duties of diligence and competence also make it prudent for the transactional lawyer to have a reliable process for ensuring nothing gets missed. This is where checklists come in. Checklists help ensure that necessary background tasks and vetting get done and that required attachments and appendices are in order. Checklists ensure that remedies are adequate, that the contract has been properly formed, that risk has been properly allocated, and that the client’s goals have been met. Don’t rely on memory. Use a checklist.
The Contract Drafter as Clarifier
Contracts allow parties to clarify the deal by precisely defining terms, reducing ambiguity, proactively addressing issues, identifying and allocating risk, and clarifying performance obligations and remedies.22 Tina Stark, Drafting Contracts: How and Why Lawyers Do What They Do at 4 (2d ed. 2014). An attorney can brilliantly navigate a negotiation, but if the provision isn’t clearly reduced to writing, the advantage is squandered.
Clarifying the deal starts with understanding what the parties mean and making sure the contract reflects this meaning. Clarifying the deal means drafting in plain, modern, English—not legalese or Latin archaisms. Clarifying the deal means explaining the ramifications of the deal and its implications—for example, how the contract’s limitation of liability provision limits damages to “direct damages” and how this affects remedies.
Even the process of reviewing and editing the contract can advance clarity. For example, consistently providing explanatory notes to redline edits increases clarity by helping the other party to understand the rationale behind requested changes.
Ambiguous provisions—those passages subject to more than one reasonable interpretation—are the hobgoblin of clear contract drafting. The “contra proferentem rule” is particularly unsettling for the deal lawyer, standing as it does for the proposition that courts construe ambiguous clauses against the drafter. Good deal lawyers root ambiguity out from every nook and cranny.
Ambiguity’s evil sister—inconsistent language—must also be corralled if the contract is to remain clear. Contracts are not the place to dust off your thesaurus.33 Kenneth A. Adams, A Manual of Style for Contract Drafting at 1 (2004). Eschew variety. Use the same word, the same way, to mean the same thing throughout the document. And where the term has a meaning particular to the contract, put it in the definitions section.
The Contract Drafter as Negotiator
As a trusted advisor and subject matter expert, the drafter typically finds herself negotiating substantive provisions of the agreement. As negotiator, it pays to deeply understand the client’s business so that your contributions are not merely technical or formulaic but address actual business needs. The contract negotiator should help her client understand its negotiating range and accompanying metrics, bargaining chips, walk-away point, and the all-important BATNA, or “best alternative to a negotiated settlement” (i.e., alternative to a contractual agreement). Drafting a provision is one thing. Understanding the alternatives is another. The effective dealmaker needs both.
The Contract Drafter as Futurist
While litigators litigate over past events, deal lawyers live in an ex-ante, future-oriented world, pondering how contractual language ultimately affects substantive rights. The
effective contract lawyer scrutinizes potential events and scenarios to ensure contract language prevents issues and litigation. To foresee what the future might hold, deal lawyers must understand how the deal might come off the rails. A good question to ask your client is: “What are your greatest fears about this agreement?” Once you understand what failure looks like, you can take steps—like refining performance requirements or remedies—to avoid it.
The Contract Drafter as Risk Manager
During the contract-drafting and negotiation phase, parties allocate risk by deciding whether to deal with risk now or later. For example, incorporating vague standards of performance like “best efforts” into the contract is risky. Yet, the (well-advised) parties may sometimes intentionally decide to defer handling the risk until the back end (litigation phase) as opposed to resolving the issue on the front end, by more precisely delineating performance obligations.44 Robert E. Scott and George G. Triantis, “Anticipating Litigation in Contract Design,” Yale L. Rev. 814 (2006).
Transactional lawyers help their clients evaluate other risk-management strategies—one of which is simply to walk away from the risk by not agreeing to the deal. Eliminating risk is not always the best outcome, though, because you might eliminate the deal in the process. Rather than walking away from risk completely, a more nuanced approach by a skilled deal lawyer involves employing various risk mitigation strategies, such as obtaining insurance or including limitation of liability clauses.
In addition to transferring risk to a third party (i.e., an insurance carrier), risk can be transferred to the other contractual party. Indemnification provisions are a familiar means of transferring risk but their use often depends on factors outside the lawyer’s control, such as the parties’ relative bargaining power, alternatives, and the value proposition.
Contract lawyers must lean in to their role as risk managers by exploring all four risk management options— (1) walk away, (2) accept, (3) mitigate, or (4) transfer.
The Contract Drafter: A Multifaceted Role
As we’ve seen, the contract drafter plays many roles: advisor, advocate, clarifier, negotiator, futurist, and risk manager. Performing these roles effectively requires conscientiously handling details at the runway level while helping your client achieve a 30,000-foot perspective on goals, future contingencies, and trade-offs. In meeting the requirements of all of these roles, the transactional lawyer truly is the straw that stirs the business drink.
SIDEBAR
Guides to the Nitty-Gritty of Contract Drafting
Here are some excellent resources to help the transactional attorney continue to learn about contracts:
- Contract Nerds (https://contractnerds.com/contract-redlining-etiquette/) is a blog by and for contract lawyers that provides excellent posts on contracts for business attorneys, in-house counsel, contract managers, law students, and anyone else who works with contracts.
- Bloomberg Law (www.bloomberglaw.com/help/transactional-intelligence-center) is a subscription-based service that offers online legal content, AI, and analytics for business lawyers, including a “Transactional Intelligence Center” that functions as a “one-stop shop for tools and content created for transactional lawyers” including templates and examples.
- A Manual of Style for Contract Drafting by Kenneth Adams. This book offers a comprehensive guide to drafting better contracts and avoiding common drafting pitfalls.
- Contract Drafting and Negotiation for Entrepreneurs and Business Professionals by Paul Swegle. This book covers essential aspects of contract law including common mistakes, negotiation tips, drafting advice, and common contract terms.
- Drafting Contracts: How and Why Lawyers Do What They Do by Tina Stark (www.wklegaledu.com/aspen-coursebook-series/id-1121/drafting_contracts_how_and_why_lawyers_do_what_they_do_second_edition). This excellent coursebook provides clear explanations of the business, legal, and drafting issues that are integral to each contract as well as techniques and tips for better drafting and translating the business deal into corresponding contract sections.
- Sterling Miller’s Ten Things You Need to Know as In-House Counsel (https://sterlingmiller2014.wordpress.com/?s=contracts). While not a dedicated contract blog, this general purpose business law blog provides a wealth of knowledge and advice particularly relevant to the transactional lawyer, including posts on minimizing risk in commercial contracts and making contracts easier to sign.
- Building Better Contracts (WSBA CLE Aug. 4, 2021). This half-day program provides an overview of the purpose and drafting of contracts and covers substance, forms, process, key sections, and more. The recorded on-demand version will be available soon on www.wsbacle.org. Attending CLEs featuring presenters from the WSBA Business Law Section and Corporate Counsel Section is a great way to stay up to date on current issues relevant to drafting contracts. And consider joining one or both of these sections: Section members benefit from the exchange of ideas and information with others practicing in these areas.
NOTES
1. Washington General Rule 24(a)(2).
2. Tina Stark, Drafting Contracts: How and Why Lawyers Do What They Do at 4 (2d ed. 2014).
3. Kenneth A. Adams, A Manual of Style for Contract Drafting at 1 (2004).
4. Robert E. Scott and George G. Triantis, “Anticipating Litigation in Contract Design,” Yale L. Rev. 814 (2006).