Robinson Brog Leinwand Greene Genovese & Gluck, P.C. - New York City Business Litigation Attorneys

ARTICLES

DEBATING THE MERITS OF A “FRIENDLY CONTRACT”

by David Cykiert

Contracts can be forceful, unambiguous and even biased toward one side, but still maintain a friendly air. Unfriendly contracts necessitate extra lawyering, which necessitates extra arguing, which requires either failed agreements or at the very least extra fees. Practically, a “friendly contract” is one where neither side’s drafting is motivated by ill-will, and these are in fact the gold standard.

But there exists a brand of agreement that forsakes the foregoing in exchange for being labeled the “Friendly Contract,” which I strongly caution against.

HOW TO TELL A “FRIENDLY CONTRACT.”
You may have seen an Agreement that starts out something like this:

“Hi there. We’re so glad you’re here. This is a contract. Contracts stink, right!? So, we’re doing it a different way, by telling you in plain English what’s going on. Sound good?”

If the preamble is devoid of dead giveaway, you may be looking at a Friendly Contract if the typical, jargon filled but specific indemnification clause is replaced with something like this:

We’re good guys (and gals). You’re good guys (and gals). So, if we do something that hurts you, we’ll cover it. And if you do something that hurts us, you’ll cover it. Simple!”

If you’re still uncertain whether the contract in front of you is a “Friendly Contract,” ask yourself “did reading this agreement feel too good to be true?” If it did, chances are you’ve been given a Friendly Contract.

WHY YOU SHOULD SAY “NO” TO FRIENDLY CONTRACTS
If all you needed to be secure in your rights and obligations was a handshake, then you wouldn’t need a contract at all. However, commercial transactions are complex in ways that may not seem so apparent to the untrained eye. For example, if you’re the service provider, you want to know (i) exactly what you’re supposed to do, (ii) how to determine whether you’ve in fact done it, (iii) what the service recipient’s rights are to contest adequate performance, (iv) how and when you’ll get paid, (v) what risks you’re assuming, and (vi) the kitchen sink. Sure, qualifying and quantifying these understandings often requires careful word selection, descriptions of exceptions, and methods and procedures for dealing with inadequacies (in other words, lawyering). But consider the unfortunate scenario where an end user of one of your services is hurt – would it not be worth the extra words and consideration to, in that instance, be able to identify the exact moment where service was complete, risk was transferred, and you are off the hook? If you answered yes, then you should beware the Friendly Contract.

CASE STUDY.
The following is a direct excerpt from a contract I was asked to review on behalf of a client. The drafter is a large multi-national company:

“We challenged our legal team to make this Agreement user friendly, so that your eyes do not glaze over when reading important things that will determine the business relationship between us and you.”

Notice the attempt to put the reader at ease. Does user-friendly imply the user doesn’t need a lawyer? If so, isn’t that by nature, unfriendly. Whether its $1.00 changing hands or $1,000,000, subtly implying that hiring a lawyer would be silly is by nature unfriendly.

From the same contract:
The goal is to increase communication and maintain a good working relationship, not clog the process with lots of paper.

and, the best of all:
We may love your product so much that we don’t want you to sell it to anyone else at the same time that we sell it, in any part of the world where we sell it. When that happens, we will ask that you sell your product to us only.”

When I first saw this, I was absolutely flabbergasted. Was this meant to be an exclusivity provision? A springing exclusivity provision? A random thought? What was I looking at? Moreover, how could I ever advise a client to sign an agreement that may or may not require them to abandon the rest of their business.

CONCLUSION
I am a friendly guy. I am friendly on the phone. If you meet me at a bar, I’ll ask you about the tasting notes of your beer. If I see you on a lake, I’ll tell you where I caught that trophy northern pike. Heck, I’ll hold your place on line at Starbucks while you run to the bathroom; maybe. There’s a time and a place to be friendly. However, that time and place is not amidst contract negotiation, where the slightest ambiguity can result in unforeseen and unprecedented waivers of rights, catastrophic obligations, and protracted battles over provisions that if drafted in the time-honored tradition of legalese, could, still, have been interpreted as friendly.

To be clear, contracts should clearly and explicitly state all material manners of compliance, and non-compliance with performance obligations, and remedies in the event of non-compliance. This is not to suggest that contracts should be bogged down with legalese to the point where they’re rendered uninterpretable by a non-lawyer. Neither is it to say that you should question the intentions of someone who sends you a “Friendly Contract”. However, before you sign a “Friendly Contract”, it is worth understanding the holes, and how they might be paved over, which more often than not leads to a rewording of a contract in the more standard, tried-and-true form.  If you do end up receiving a “Friendly Contract,” don’t hesitate and contact a corporate lawyer like myself to help you through the matter.