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The BUSKLAW March Newsletter: Don't Use "Form" Contracts!

I have a confession: I'm an office-supply-store junkie. I love to browse the shelves brimming with multi-colored pens, pencils, file folders, legal pads, rubber bands, and paper clips. (Yes, paper clips - the gold ones are especially snazzy!) And I love the snacks that you can buy in bulk, especially Twizzlers. Because if you brought that decorative low-fat snack back to your office, your colleagues would praise you for giving them something tasty that also satisfies the common urge to relieve stress by chewing things

But there's a dark side to office supply stores: they sell form contracts. The fill-in-the-blank, "one-size-fits-all" kind. (The General Agreement is my Bizarro-World favorite; then again, as Shakespeare said, "What's in a Name?"

There are several reasons why using off-the-shelf legal form contracts is ill-advised:

1. You don't know if the form contract complies with your State's law. Even if a form is labeled "suitable for use in [your State]," you have no assurance that it complies with your State's law in effect on the day that the agreement is signed, and no appropriate remedy if it doesn't. A refund of the cost of the form, perhaps, but so what?

2.  What about the form contract's relationship to other legal documents? The form likely refers to other legal documents, and it's too easy for a non-lawyer to ignore those or fail to understand how they should relate to the principal form. For example, many professional services form agreements refer to a statement of work ("SOW") that should be attached to the agreement, but what if the SOW conflicts with the agreement in some way? In some cases, the SOW should control; in others, the agreement should take precedence. There's no way that an untrained person can decide which document should control. 

3. The form contract doesn't consider your business culture. In my legal practice, I try to understand my client's business culture, including their appetite for risk - and their available insurance coverage. But it's impossible for the author of a form agreement to draft it with these considerations in mind. For example, your management might prefer mandatory arbitration of disputes arising from the agreement rather than litigation. The form may not reflect your management's position on this and other areas where business preferences intersect with legal terms, such as provisions excluding certain damages and limiting liability.

4. The form contract doesn't account for your bargaining position with the other party. A competent contract attorney learns the extent that his client has bargaining leverage over the other party and drafts (or reviews) the contract accordingly. But form contracts have no way to gauge the parties' bargaining leverage, resulting in generic or neutral provisions that may not adequately favor the party having that leverage.

5. The form contract will probably contain ambiguous, confusing, and litigation-engendering legal jargon. Most form contracts rehash other old contracts without considering the stupid legal jargon that should be tossed out and replaced with plain language. I've talked a lot about how legal jargon hurts the reader's understanding of a contract and can lead to litigation, and it's likely that a form contract will be rife with it. Here's my humorous treatment of legal jargon. For a more serious perspective, here's an article that I wrote for the Michigan Bar Journal.

For these reasons, if you use form contracts, you're rolling the dice on whether they will accomplish your legal - and business - purpose. So don't use them!

If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is www.busklaw.blogspot.com and my website is www.busklaw.com. And my email address is busklaw@charter.net. Thanks!

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