You can always do better than terms and conditions.

Sometimes, as in the following uncleaned-up examples, your best bet is to omit it entirely:

WHEREAS , the Board of the Company desires to appoint the Director to serve as and perform the duties of an independent director and the Director desires to be so appointed and to perform the duties required of such position in accordance with the terms and conditions of this Agreement;

The Executive will be entitled to no less than four (4) weeks of paid vacation per year during the Term, subject to (but not reduced by) the terms and conditions of the Company’s vacation policy as in effect from time to time.

Tenant shall comply with all of the terms and conditions of each insurance policy maintained pursuant to the terms of this Lease.

Sometimes you should use just terms—after all, a condition is a kind of term:

If at any time during the Term of this Lease, Landlord shall receive a bona fide offer (a Third Party Offer ) from a third party … to purchase the Leased Property, containing terms and conditions satisfactory to Landlord, …

The Executive’s and her family’s eligibility and all other terms and conditions of the Executive’s participation in the Bank’s or Company’s benefit, insurance and disability plans and programs will be governed by the official plan documents which may change from year-to-year.

Except as otherwise expressly provided for herein, such renewal shall be on the same terms and conditions as provided for during the Initial Term …

Terms and conditions is also used to refer to the stuff in commercial contracts other than the deal terms (product, price, date of delivery, and so on). I suggest you use instead “general terms,” as I did in this post earlier this month.

It showcases the work of Russell Christian, a talented illustrator. And it was made possible by that noted patron of the arts, Business Integrity, developer of ContractExpress document-assembly software (and sponsor of my seminars and webcasts).

But first, the backstory: At the invitation on Business Integrity, last October I was on a panel at the annual meeting of the Association of Corporate Counsel. The topic was, unsurprisingly, document assembly, and for the first part of the session we prepared a short PowerPoint presentation that featured half-a-dozen of Russell’s illustrations. We had intended to turn it into an online movie, but unfortunately we had to scrap that idea. I nevertheless thought that Russell’s illustrations deserved to be seen, hence this post.

Now, on to the artwork! The image below I call “The Markup from Hell.” It expresses perfectly the suffering of a rational contract reviewer stuck in an irrational world. Think Hieronymus Bosch.

Next is “Ready for Signing.” It’s serene and pregnant with promise. I see de Heem! I see Cezanne!

Below is the utopian “Commoditizing the Contract Process.” I get choked up just looking at it. 

And lastly, we have an image that Russell created at the request of The National Law Journal to accompany my article “Dysfunctional Drafting.” I call this one “The Mainstream Drafter.” All joking aside, I think it’s clever.

Here’s the one sensible suggestion I have to offer based on my experience of putting together our PowerPoint presentation for the ACC session: investing in an original and imaginative set of illustrations is a great way to make your presentation distinctive. And it shouldn’t cost very much. If that’s something you want to explore, you might want to contact Russell.

By the way, note that the first three images are the property of Business Integrity and the fourth is the property of Russell or ALM.

But that doesn’t quite capture the problem that alternative meanings pose for the contract drafter. It’s not only the reasonable reader that you’re worried about. Instead, you’re worried about anyone, reasonable or not, who misunderstands a given provision and is willing to fight about it—winning a lawsuit is a distant second-best to not being involved in litigation in the first place.

Furthermore, different people—in particular, different judges exhibiting different levels of semantic acuity—can have different views as to whether something is ambiguous.

Due to those two factors, any drafter should aim to avoid ambiguity by a wide margin. It’s not good enough that reasonable people couldn’t come up with alternative meanings. Instead, you want to preclude the other side, no matter how belligerent, addled, or poorly advised, from coming up with a remotely plausible alternative meaning that’s more favorable to them.

These thoughts came to mind on reading something that Ur-reader Michael Fleming sent my way: Portfolio Mgmt. Group, LLC v. Bitach Fund I, LLC, Case No. 09-CV-3193 (D. Minn. Mar. 2, 2010). (Click here to go to a pdf copy.)

Here’s the contract provision at issue:

5.9 CHOICE OF LAW AND JURISDICTION. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota. [Bitach] specifically agrees to the Courts of Minnesota as sole jurisdiction for litigation of any controversies arising out of this Agreement.

The plaintiff Portfolio Management Group (“PMG”) sued Bitach in state court in Minnesota; Bitach removed that action to federal district court; PMG moved for an order remanding the case to state court, but beforehand, Bitach moved to compel arbitration. The latter motion was presented to one Magistrate Judge Boylan, who issue a report and recommendation (“R&R”) recommending that the federal district court grant Bitach’s motion.

The R&R addressed the issue of state court jurisdiction, and here’s what the federal district court had to say in response:

This Court sits in Minnesota, but it is not a court of Minnesota. It is instead a court of the United States of America. The Court respectfully disagrees with Judge Boylan’s conclusion in the R&R that the phrase “Courts of Minnesota” in the forum-selection clause could reasonably be construed to include federal courts in Minnesota and is therefore ambiguous. R&R at 4. Instead, the Court agrees with the majority of federal courts that the phrase “courts of” a particular state unambiguously refers only to that state’s courts, not to federal courts sitting within the boundaries of that state.

The federal court thought that the jurisdiction provision was unambiguous, and their reading does make sense. But in terms of lessons for the contract drafter, just as relevant is the fact that another judge thought it was ambiguous. It would have been preferable if the provision at issue had been drafted so that even that judge would have thought it unambiguous.

How might that have been accomplished? If the parties had indeed intended that only state courts would have jurisidiction, I’d have referred to “any state court of Minnesota.” I don’t think you’d need to say “any state court of the state of Minnesota.” (And incidentally, I’d have written the entire provision differently.)

• The left-hand column is wider, to take into account that people have been migrating to wider monitors.
• I added a new “Press” page (under “About” on the navigation bar) on which are listed items that mention me and what I do. They go back to the dawn of time—a 2001 New York Law Journal article about my first book.
• The “In-House Seminars” page now contains links to sample agendas for my Drafting Clearer Contracts seminar.
• On the “Ken Adams’s Articles” page I fixed a lot of dead links.
• On the “Contact” page I added links to my Twitter and LinkedIn profiles.
• The comments now use Intense Debate, which provides various login options, allows you to reply to comments if you wish, and allows you to be notified of any new comments or just replies to your comment.
• Each post contains at the bottom an addthis.com “Share” button. It allows you to, well, share any post more easily.
• I fixed, cleaned up, and renamed the “Email this Link” that’s at the bottom of each post. It provides another way for you to share what’s on this site.
• When you use the “Print this Post” link at the bottom of each post, any comments will also be printed out.
• And I updated and cleaned up the text throughout the site. (I was mortified when a reader recently pointed out some typos on the “Goals” page.)
• Note that we’re still fiddling with the “Video” page, and I may scrap it.

I hope these changes make more efficient and agreeable the time you spend on this site. I’d be pleased to hear what you think.

First, I exchanged emails with a reader in Asia. Here’s what he said, in part:

We operate at a level of mediocrity in Asia (including India, a particular hotbed of florid legalisms and Latin locutions) and most of Europe that would induce tears. A great part of the problem is that English is not always the primary language. Those who speak it passably are eager to preen by stuffing documents with what they perceive to be fancy words.

And I encountered this article from ArabianBusiness.com. It’s by Fiona Robertson of The Rights Lawyers, a technology, media, and telecommunications boutique based in Dubai, and it details some bizarro language she’s encountered in contracts. I suspect—or rather, I hope!—that in some instances the language in question was drafted by a non-native English speaker.

And the third reminder was a conversation that I had today with someone in Europe. He inquired whether my stuff might be too advanced for his company’s personnel, most of whom are non-native English speakers.

These three reminders prompted the following thoughts:

If your company enters into contracts that are in English, you have no choice in the matter: To protect your company’s interests, your company’s legal and contracts personnel will have to ensure that the contracts accurately express your company’s intent. To do that, you have to be able to manipulate English sufficiently to avoid the sorts of problems that routinely cause confusion and land people in court. That requires a decent command of the form of standard English that should be used in contracts. And there’s no way to somehow dumb it down for the non-native English speaker.

But that challenge is manageable. The language of contracts is limited and stylized, so you don’t have to wrestle with much of what gives English its fiendish complexity. And if you’re looking for guidance, MSCD provides the only comprehensive set of guidelines.

It was fun to write, and here’s why:

• I got to revisit a topic, arising out of or relating to, that I’ve worried at inconclusively in several blog posts.
• The provision in question raises a great categories-of-contract-language issue. Regular readers will know that I regard mastery of categories of contract language to be the foundation of controlled drafting.
• I was able to demonstrate that even if in your review of contract language you’re limited to examining how you say something, not what you say, you can still make drastic improvements.
• And I was able harbor the illusion that I was somehow sticking it to The Man.

In case it isn’t obvious, in the article I don’t consider what topics should be included in an arbitration provision. Instead, I limited myself to offering a redraft of the AAA standard abitration clause.

This is the first “traditional media” article I’ve written in just over a year. This blog gives me a big enough soapbox to stand on that these days I generally don’t feel inclined to seek other outlets. But this was a juicy topic, and I thought it might appeal to a broader-than-normal audience. And I knew that the prospect of extra scrutiny would focus my mind.

I don’t expect that this article will be my last word on this topics addressed in it. I welcome any comments.

Here’s the bit that caught my eye:

On the key issue in the appeal, the court found that Cussler had a contractual right to review and reject proposed changes to the original Approved Screenplay “for unreasonable reasons … or for no reason at all.” The court rejected Crusader’s argument that granting Cussler such broad discretion rendered the agreement illusory, since Crusader retained the right to produce the film using the Approved Screenplay. In short, because the contract did not require Cussler to act either reasonably or in good faith, he could not be held liable for having failed to do so.

So if a contract governed by California law explicitly grants you the right to behave utterly unreasonably, the other party can’t complain if you take the opportunity to do just that.

How does this play out in other jurisdictions, in the U.S. and elsewhere?

When you issue a stand-alone purchase order (in other words, one not issued under a master contract), you could incorporate the general terms (in other words, everything that doesn’t relate to deal-specific matters such as product and price) in different ways. You could include them with the purchase order, you could park them on a website, or every year you could send your suppliers the general terms that apply to all purchase orders until the next set of general terms you issue. In the case of options two and three, the purchase order would contain a notation regarding which general terms apply.

Options two and three would have economy in their favor—you wouldn’t have to weigh each purchase order down with a set of general terms. That would speed transmission of POs by EDI (electronic data interchange) and by fax. On the other hand, if the recipient of a given PO isn’t familiar with the general terms, not including the general terms would give the recipient an extra hoop to jump through. It’s a tradeoff.

If you’re going to put the general terms on a website, bear in mind two issues that I’ve written about. Drafters sometimes fail to properly make a “virtual attachment” part of a contract; see this October 2007 blog post. You’d want to make sure that an analogous problem doesn’t arise with respect to having a set of general terms apply to a given PO.

And you’d be faced with the issue of whether you could unilaterally amend your general terms; see this July 2007 blog post. The conservative approach, by far, would be not to unilaterally amend your general terms. Instead, you’d put up a new web page for your revised terms, and they’d apply only to POs issued thereafter.

Otherwise, I’d be interested in your thoughts as to when it’s appropriate, or not, to use each of the different methods.

For example, a search on the SEC’s EDGAR system quickly retrieved this document, a “forebearance agreement and amendment to indenture” between Gulfstream International Group, Inc. and Shelter Island Opportunity Fund, LLC. Here’s what came after their signature blocks:

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS The undersigned, each a guarantor of the indebtedness of Gulfstream International Group, Inc., a Delaware corporation ( Company ) to Shelter Island Opportunity Fund, LLC ( Holder ), pursuant to the separate Guaranty of each dated as of August 21, 2008 (each, as amended from time to time, a Guaranty ), hereby (i) acknowledges receipt of the foregoing Forbearance Agreement and Amendment to Securities Purchase Agreement and Debenture (the Agreement ); (ii) consents to the terms and execution thereof; (iii) reaffirms all obligations to Holder pursuant to the terms of the Guaranty; and (iv) acknowledges that Holder may amend, restate, extend, renew or otherwise modify the Transaction Documents and any indebtedness or agreement of Company, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the Guaranty for all of Companys present and future indebtedness to Holder.

[Signature blocks omitted.]

I haven’t previously given any thought to the practice of tacking acknowledgements on to the end of a contract. I invite you to suggest whether or not that practice makes sense and, if it does, when it’s appropriate to use it.

As you know, goods or services can be purchased by means of purchase orders issued under a master contract or by POs that aren’t issued under a master contract—I’ll refer to the latter as “stand-alone” POs. They can be issued for one-off purchases or on a regular basis as part of an ongoing relationship.

When you have a master contract, the general terms—in other words, everything that doesn’t relate to deal-specific matters such as product and price—are contained in the contract; the purchase orders issued under the contract contain just the deal terms. Furthermore, the general terms in a master contract are negotiated. By contrast, when you buy something using a stand-alone purchase order, the general terms are contained in the PO along with the deal terms, and those general terms are determined unilaterally by the purchaser rather than negotiated.

So what’s your take on the general terms in a stand-alone PO as compared to those in a master contract? Should they be equally comprehensive, or should those in a stand-alone PO address fewer topics more concisely and more evenhandedly?

Currently, the general terms in my company’s master contracts aim to be comprehensive, but those in our stand-alone purchase orders are shorter. One big reason for that is that including general terms in a PO makes demands on the supplier. Because the general terms in our stand-alone POs won’t have been negotiated beforehand with the supplier, they’re a source of delay, in that the supplier has to read through them and, after having done so, may balk at one or more of the general terms. And the longer the general terms are, they greater the likelihood of delay, and the greater the risk that the supplier will decide that given the extra one-sided verbiage, they’d rather not do the deal. Sometimes we end up having to negotiate; other times we agree with the supplier that if any conflicts arise, we’ll resolve them according to the Uniform Commercial Code.

This is of great interest to me because our legal department has prepared a new set of general terms for our stand-alone PO that essentially mirrors the general terms in our template master contract. That means the new set of general terms is comprehensive and one-sided in our favor. It’s also three times longer than the general terms we currently use for stand-alone POs. I’m torn between wanting to protect our company by using a comprehensive set of general terms for all our transactions versus wanting to use a shorter set of general terms so as to expedite our stand-alone PO transactions, most of which are low-risk. I’d be interested to hear what you think.

I don’t have direct experience with this issue, but here’s my first-principles take on it:

I can understand wanting to have the same general terms apply to purchases under a master contract and purchases under stand-alone purchase orders: your concerns as a purchaser are the same in both contexts.

But you have to consider the transaction costs. With a master contract, the parties have decided that they’ll be doing enough business together to warrant incurring up-front the transaction costs involved in negotiating a master contract. By contrast, with a stand-alone PO, you’re dealing with a single transaction—it would presumably not support the same level of transaction costs.

For purposes of illustration, here are a couple of hypothetical scenarios with make-believe numbers:

Acme and AlphaCo negotiate a master contract for Acme’s purchase of widgets from AlphaCo. In negotiating the general terms they incur $10,000 of transaction costs. They anticipate that Acme will purchase $1 million of widgets over the life of the contract.

By contrast Acme and BetaCo elect to have Acme purchase widgets from BetaCo using stand-alone POs. Acme orders 1,000 widgets for $10,000, using a purchase order that contains the same general terms as it used in the master contract with AlphaCo. The order placed with BetaCo is worth 1% of the expected value of purchases under the master contract with AlphaCo.

BetaCo’s transaction costs could well be less than Alphaco’s: with a one-off transaction, not as much would be at stake, so BetaCo might well be willing to accept some general terms without any haggling. But it wouldn’t be reasonable to expect the transaction costs incurred by Betaco to be 1% of the transaction costs incurred by Alphaco—the time it takes to read and understand the general terms would be the same for both transactions.

And it wouldn’t be realistic to expect that just because it’s a one-off transaction, BetaCo will accept all the general terms without negotiation. After all, a supplier that’s willing to give concessions in each one-off transaction could soon find itself with a portfolio of unfavorable contracts.

And it pretty much follows that if a comprehensive set of general terms in a stand-alone PO causes BetaCo to incur disproportionate transaction costs, closing the deal would cause Acme, too, to incur additional transaction costs as it engages in discussions with BetaCo.

So it may be that for the deal to make sense, the general terms in any stand-alone PO issued to BetaCo would have to be significantly shortened and made less one-sided so as to reduce BetaCo’s and Acme’s transaction costs.

Of course, BetaCo’s transaction costs could well be reduced drastically the next time Acme submits a stand-alone purchase order. But that assumes that the same BetaCo personnel are handling the second PO as handled the first. And more to the point, in handling the first PO, it would be risky for BetaCo to assume that it would in effect be able to amortize its transaction costs over the course of future purchases: for all it knows, Acme’s first PO could be its last.

So I’m sympathetic to the notion that for purposes of stand-alone purchase orders, it make sense to cut back a set of general terms used in a master contract and make them less one-sided, even though they reflect legitimate concerns.

I’m sure readers will have their own practical—as opposed to theoretical!—take on this.