Should You Retain Drafts of Contracts?

Each law firm where I worked doubtless had a written records-retention policy, but I was blissfully unaware of it. Instead, I and at least some of my colleagues did whatever we thought appropriate. In that regard, the one question that seemed to crop up quite often was whether after a deal closes one should retain in the files for that deal any drafts of the signed contracts.

Some partners were of the view that once a deal closes, you should discard all drafts. I never understood that approach. If after closing the parties disagree over the meaning of any given provision in a contract, understanding how that provision had changed over the course of negotiations could help significantly in determining what the parties had intended. That might work in favor of the other side, but it could equally well work in favor of your client. And if you’ve thrown out all your drafts and the other side has retained all its drafts, your client could be at a significant disadvantage.

The benefits of preserving your drafts after a deal has closed were clearly on display in the declaration of Tor Braham that Novell recently filed in its litigation with The SCO Group. (Thanks to Mister Thorne of the Set in Style Blog for telling me about this.)

In 1995 Wilson Sonsini, Novell’s outside counsel, was retained by Novell to negotiate and draft an asset purchase agreement with Santa Cruz Operation, Inc., The SCO Group’s predecessor. Braham, then a Wilson Sonsini partner, led the team handling this matter. In describing in his declaration, twelve years later, what the intent of the parties had been, Braham was able to refer to a series of drafts and draft markups (apparently both internal and external) from 1995. (You can find on Groklaw a link to the declaration and its exhibits, as well as a discussion of the litigation.) It would seem that Novell benefitted greatly from Braham’s filing habits.

So before throwing out all your drafts in a fit of post-closing exuberance, consider how Braham might have felt if the “Drafts” folder in Wilson Sonsini’s files for the Novell deal with The SCO Group had been empty.

On the other hand, bear in mind that nowadays the notion of paper files might be beside the point. Most documents are now stored on document management systems and distributed electronically, so if you needed to find the drafts and markups for a given deal, you probably could lay your hands on electronic copies. And presumably so could litigators representing the other side in litigation against your client.

By the way, here’s a further thought regarding the Braham declaration: Wilson Sonsini’s job was to draft an agreement that clearly expressed the intent of the parties. The fact that Novell had to ask Braham to elucidate the intent of the parties suggests that the agreement was not as clear as it should have been. Being able to retrieve a full set of drafts and markups was a neat trick, but avoiding litigation by drafting a clear contract would have been much neater.

Finally, if you’re wondering whether there’s some middle ground between trashing all drafts and saving every scrap of paper, below is an extract of a sample client-file retention policy. It’s from Lee R. Nemchek, Records Retention in the Private Legal Environment: Annotated Bibliography and Program Implementation Tools, Law Library Journal (Winter 2001). Ms. Nemchek is the information resources manager at Morrison & Foerster’s Los Angeles office.

2.4. Drafts

The Drafts subfile should contain only one clean, unmarked copy of each draft of a document received by or prepared by and circulated outside the Firm. All other drafts should normally be destroyed when the file is sent to offsite storage. As a general rule the file should not include internal draft documents, which we have not circulated to anyone outside of the Firm, or documents marked with handwritten comments, except when we have circulated the marked copy to a client, opposing counsel or other persons outside the Firm. An individual partner may conclude that on a particular project it is important to retain marked copies or internal drafts that have not circulated outside the Firm. When a partner believes that marked copies or internal drafts should be retained in the official file and the practice group head concurs, the secretary who maintains the files should segregate the marked copies in a separate drafts or memoranda file which properly identifies the drafts as marked or working copies. When the project is complete, the partner should reevaluate the decision to retain these copies. In most cases, the Firm believes that marked copies do not add a meaningful history to the file. Usually these copies reflect the correction of drafting or other errors, without casting any meaningful impression of the parties’ intentions.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.