Of course this stuff is hard to read! So is quantum physics, but that’s because quantum physics is, in fact, hard, no matter how well you write it (even for quantum physicists). Contracts, however, should be easy to read – clear declarative sentences organized into paragraphs arranged in a logical order.

Contracts are like computer programs. They set some initial conditions (names of parties, date, etc.). Then they list a series of basic directions and “if…then” statements which, if properly thought through, should cover most any eventuality governed by the agreement. That’s what computer code does.

You can run computer code on a computer processor and you will know pretty quickly if the code runs smoothly or if it hangs. The problem with contract language is that for now, there is no contract processor to run the code, except the gray matter of the reader, who may be a judge, another attorney, or just a contract party.

Here are some tricks I use to make sense of contracts.

If you have the electronic file (in Word or something similar), do these simple “search and replace” operations. Your altered contract may not read perfectly, but it will be improved and more understandable.

After this, your contract will be shorter and reading it may seem less daunting. More importantly, it will be dramatically clearer and more understandable. I actually have a software tool that will do all of this automatically in one pass, which is very helpful.

All of these legalisms have crept into the language of contracts over the years, and now most lawyers just accept them, and even feel uncomfortable without them. Some actually think that adding them is chargeable work. This does not make them necessary or even helpful. In many cases, they are just crutches for sloppy drafting, which is often a symptom of sloppy thinking.

In particular, I despise “For the avoidance of doubt……” followed by anything. I was taught that a good drafter says things once and says them clearly. If you have to repeat it, you need to rewrite it. “For the avoidance of doubt” is the legal equivalent of “I mean, you know, it’s like, blah, blah, blah……..right?” Repetition of the same idea with different wording merely opens up cracks for ambiguity to seep into the contract. If litigators get a hold of that language, they will pry those cracks open with industrial strength jackhammer arguments and corrosive cross-examination leaving your “iron clad” agreement in a pile of rusty rivets and crumbling boilerplate. It’s worth knowing that an infamous case not so long ago turned on the presence or absence of a comma, and millions were at stake. Clarity matters.

So, if you have to read a contract, you can either mentally make these adjustments, or let your word processor do it for you – either way, you will find the contract much more understandable and less soporific. Your eyelid muscles will thank you. And of course, it goes without saying, (but I will say it anyway, for the avoidance of doubt ), you can send me or any of our Virginia business attorneys your contracts and we will be happy to interpret them for you!

So what is boilerplate anyway? The term originally meant exactly what it said. Boilerplate was standard, high-strength steel plate used to make boilers. Nothing fancy – just flat and strong to keep the boiler from exploding. Later, the term took on a meaning in the printing industry when blocks of text that were reused frequently were sometimes cast in steel as opposed to lead to make them more durable. Over the years, the word acquired a more general meaning, connoting anything highly standardized and commonplace. Lawyers adopted the term to refer to the language at the end of the contract that doesn’t seem to change very much from deal to deal.

It’s true that contract boilerplate language doesn’t change much, but the changes, while subtle, can be important. Boilerplate language is just as much part of the contract as the price, the delivery date or the description of the goods or services. What’s different about boilerplate is that it mostly matters when there’s a dispute. Of course, that’s when you really want the contract to be clear, unambiguous and, ideally, drafted in your favor.

Let’s look at one typical boilerplate term that most business people gloss over. It’s called the “integration clause.” The integration clause says that the written contract embodies all agreements of the parties with respect to the subject matter.

At first glance this seems obvious, and superfluous. Trust me, it’s not. The reason for this language is that, if it is not present, either side may be able to introduce evidence of subsequent agreements, side agreements, understandings, interpretations or other factors that could dramatically change the meaning of the agreement. If the language is present, then the person trying to prove something other than exactly what the agreement says has a high burden of proof. The only surefire way to prove that the terms of the agreement as written are not binding would be to have another written document amending the agreement and referring to it specifically. So the real purpose of this boilerplate clause is to enhance the certainty for both parties.

In this way, the language performs its boilerplate function exactly, holding the contract together despite pressures that might blow it apart. What common terms are you skipping over in your DIY contracts?

Remember the classic Monty Python skit? Eric Praline (John Cleese) walks into the Post Office to get a fish license for his pet halibut (also named Eric) and gets into an argument with the man behind the counter (Eric Idle). Here is an excerpt*:

Praline (pulling out his “cat license” to prove such things exist):
What’s that then?
Man: This is a dog license with the word ‘dog’ crossed out and the word ‘cat’ written in crayon.
Praline: The man didn’t have the proper form.
Man : What man?
Praline: The man from the cat detector van.

It gets sillier from there, but I digress…

Of what possible relevance is this you ask? Simple, this happens all the time in small business. Understandably, business owners want to control costs. Legal fees in particular. In light of the huge volume of legal documents accessible from the web, who can blame a business owner for finding what looks like a perfectly good form, marking it up and using it for a critical contract. This is commonplace, but very risky. I spend a significant portion of my practice time trying to extricate clients from unfortunate situations caused by this casual approach to contracts.

Here’s an example. Suppose business is tight, and you need some additional help, but you’re not prepared to hire a full-time employee. That’s when many businesses turn to “independent contractors” or “1099s” (in reference to the tax form the company sends to the contactor at tax time). This can be an excellent solution to the business problem, but a casual approach to the contract can have consequences far more expensive than the withholding tax that might be saved. In these situations, I have seen numerous examples where the business owner simply takes their standard “employment at will” agreement, does a search and replace substituting “contractor” for “employee” and “contract” for “employment.” What could be simpler?

But here’s the rub. Many of the pro-employer terms in a good employment agreement can have disastrous tax consequences if they remain in an independent contractor agreement. The IRS is not bound by your contract, but it can certainly give them lots of ammunition to use against you. The IRS has a list of 20 characteristics that determine whether the relationship is truly an independent contractor relationship, or merely a disguised employment. One of those key points is whether the relationship is terminable at will by the “employer.” If it is, then the IRS will likely take the position that this is an employment relationship.

So the standard “at will” clause in an employment agreement is the last thing you want to see in an independent contractor agreement. That’s just one of many examples. If the IRS decides your independent contactor arrangement is really just employment in disguise, they will not only assess the employer for unpaid withholding taxes, they can also impose a heavy 100% penalty on the “control persons” who write the checks or authorize the payments. That would generally be the owner. And what’s worse, if the IRS recharacterizes the independent contractor relationship as one of employment, then the contractor/employee may even have a claim against the employer for unpaid overtime, which would include significant damages and legal fees.

Take the same situation, but reversed. If the company dusts off what is really an independent contractor agreement, and tries to use it as an employment agreement, they have probably tossed away their right to terminate the employee “at-will” because the contractor agreement was for a specified task at a set price. As long as the contractor performs the specified task, they have a right to finish the job and get paid. Is this what you want in an employment agreement? Probably not. Keep that in mind if you are considering the DIY approach. Sure, you will probably save some legal fees, but from our experience, they will be dwarfed by what it will cost to untangle the “hairball” you may create.

For more merriment from Monty Python’s Flying Circus, go here.