Thursday, June 6, 2013


It was one of the most frustrating concepts I regularly dealt with when I worked as an in-house counsel.

One of my duties was "contract review."  The legal oversight of all the contractual relationships for the company where I worked.  It became a daunting task.  I was expected to review and approve the language in almost every contract the organization entered.  With almost a dozen health care and housing sites to manage, and several subsidiary service companies, this became hugely time consuming.  So I taught the managers of the company how to do a basic review of all the basic vendor contracts they entered into, and what to watch for.

But the biggest problem I often encountered -- and still do with my clients who ask me to review clients today -- is that the folks who ask me to review the contract presume that if I approve the language of a contract, then it must be alright to sign it.

But here's the rub.  While a legal analysis of any contract is extremely important, it has certain limitations.  There are many things a legal analysis simply does not address.  An attorney, by his own experience and expertise, has certain limitations.  A lawyer's review of a contract is not all inclusive. Therefore, there are certain things a client cannot assume even the most experienced attorneys can address (although some lawyers will have the experience to offer more).

For example, my review of your contract does not address the issue of common sense or good business judgment. In the decade and a half I spent as a corporate general counsel, there were numerous times where a manager was frustrated with the results of a business deal, and in working with me to try and fix the problem would say in exasperation, "but you approved this contract!"  Sure I did.  But I had no idea whether the business deal at the core of the contract was wise.  I didn't know the other party was a weasel.  I didn't know the market would change, or understood the pricing practices of that particular business sub-set, or that the equipment you bought at such a cut rate would break down.  Because of my experience in certain areas, I now can certainly advise a client when I suspect a business deal isn't a good idea.  But a strict "legal" analysis doesn't address this issue.

My review of your contract does not require that records or understanding must be complete. If I am not part of the negotiation that went into the contract, I won't know whether your understanding of the "deal" is actually reflected within the four corners of the document.  If you don't explain that to me, I won't know to look for it.

Any attorney's analysis of a contract will involve making judgments based on established principles of equity and legality. As an attorney, I am generally not a stakeholder in the process of constructing a contract.  My insight is much narrower.  I focus on making sure the contract follows established legal standards, and that the rights of my client under the terms of the contract can be enforced.  Some of my clients bring me closer into the inner workings of their business, but even then, there is a need for clarity regarding what my role will be and what the client expects.

A client often comes to me with a demand that I just do a "quick review" of this contract.  They want the comfort of knowing their lawyer giving them a "thumbs up" on a transaction, but they don't want to pay a lot for it.  "Don't spend a lot of time on this," they say.  I can give them my review of the legal boilerplate, and whether the basic concepts are covered (e.g. Is the contract as a whole enforceable? Are there particular clauses that are not enforceable? Does it comply with statutory or regulatory requirements? Are there any important provisions missing? Are the termination and remedy provisions clear and unambiguous?)  A lawyer experiences frustration when he or she feels that the business people are abdicating responsibility for making business judgments.  On the other hand, I understand when the client feels frustrated because they feel the lawyer won't give them an opinion that is more airtight -- they expect when their lawyer says "OK" everything will truly be "Ok."

I try and make these things clear to my clients -- that they understand the scope of my review of their contracts. But more and more, clients are expecting so much more.  While my 23 plus years of experience might help me to offer a more comprehensive review of a client's proposed business transaction, I cannot assure my clients that the contract they enter into will produce positive results.  I can help ensure compliance,  enforceability, remedy, and as painless a termination as can be negotiated.  But I also must make sure my clients understand the limits of my role, and work towards being as much of a help as I possibly can. 

Sometimes the best advice I can offer a client is to ask them to make sure the "deal" is everything they think it is.  In the Bible, in Luke 14:28, Jesus offers this advice, “Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?"  Even the Lord advises us to ultimately consider common sense and good business judgment.  That should be the first consideration before entering into a contract.  A legal analysis won't often sniff out a bad business decision.