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Embrace Standards, Don’t Use Form Contracts

Jun 14, 2016 10:37:53 AM

Seriously don't. No matter how efficient it may be it is not a good practice. But before the commenting begins, allow me to explain.

businessmen-with-a-contract-in-flat-design_23-2147552159.jpg1) What are "Form Contracts?"

To be clear, Form Contract is not a synonym for Standardized Contract. Many lawyers are strongly in favor of standardized contract clauses (myself included). Form contracts are generic contracts created to cover subject areas rather than specific circumstances. Fill in the blanks service contracts; downloadable buy/sell agreements; and State-provided leases are all form contracts commonly used by small to medium sized businesses, but this isn’t just a problem for small companies. Does your national property rental agency use the same contract in every state? Does your international distributor use the same contracts for different types of goods and dealers? If the answer is yes, you will run into problems.

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2) Why you shouldn't use Form Contracts.

In short, because they may not create the relationship you want with your clients and customers. Recently a friend of mine called me with a letter her landlord (a national rental agency that will remain unnamed) had posted on the door of every apartment in her building.

Please allow this correspondence to serve as a friendly reminder that all residents are required to maintain general liability insurance as a condition of your lease. If you already have an active renter’s insurance policy, our community must be added as an “interested party” or “additional interest” with all correspondence sent to [Business’s Address].

Unfortunately for the rental agency, the lease they used was downloaded off a government website. It was generic, it was basic, and it didn't say anything about requiring renter's insurance, let alone requiring the rental agency to be listed as a third party beneficiary.

This type of problem happens everywhere. Food service vendors copy contracts from other food service vendors which were, in turn, copied from another vendor. Photographers use the same contracts for weddings that they use for senior photos. Employers use the same contracts for staff and management. No matter how big or small the business, these people run into the same problems my friend's rental agency faced.

3) The solution is simple.

The contracts you use should be uniquely yours, crafted by someone with experience to meet your unique needs. For example a perishable items clause shouldn’t be included in a medical equipment contract.  This is an example of what could happen if you worked for a company that sold both medical equipment and food products and your company had a practice of using form contracts. Similarly, if you hire salaried and hourly employees, only one of those contracts should include language about requesting overtime.

Unnecessary or vague clauses create ambiguity. Ambiguity, even when the meaning "should be obvious," will lead to litigation. Let us not forget Leonard v. PepsiCo, Inc., 88 F. Supp. 2d 116 (S.D.N.Y. 1999), wherein Leonard sued Pepsi to enforce the sale of a Harrier Jet for a mere $700,000 all because of an advertising joke. Sure Pepsi “won,” but the only real winners were the lawyers Pepsi had to hire. So take a lesson from history and be cautious in your contracting. Draft specific contracts for all of your unique purposes or at the very least review, assess, and revise any form contracts you choose to copy. And of course, don’t forget The 3 Rules of Contract Drafting.

Nothing in this article is novel or new, but companies continue to use form contracts every day, and I imagine some readers will be among them. Why? Because at the end of the day, form contracts are easy and save valuable time. But, they can (and most probably will) cause headaches.  

If you’re concerned with contract complexity, don’t be. There is software that can assist with automating the content creation and document assembly process so you can quickly create appropriate contracts for all circumstances. For more information about this method, have a read of The New Method for Document Assembly - A Modular Approach. Some of the software providers that play a part in this process, and in fact complement one another, are ContractStandards (standardized content), KReveal (contract data extraction) and KResolve (contract review) as well as ContractRoom (negotiation and CLM solution).

To find out more about how ContractRoom can assist you with drafting please visit our website, www.contractroom.com, where you can book a free demo by clicking the Request Demo button.

 

Jordan Couch

Written by Jordan Couch

A self proclaimed rogue lawyer, Jordan brings a modern approach to helping clients. His practice focuses on fighting for the rights of injured workers in the Seattle area. Find him at palacelaw.com, on twitter @jordanlcouch, or email him at jordan@palacelaw.com.

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