Why So Serious? - The Best Contracts are Boring.
On why a contract should not be up for in interpretation across time and cultures; it should be redundant, clear, boring, and unapologetically serious.
Let’s go back to the basics. What are contracts? Contracts are not legally enforceable agreements, contrary to popular belief; contracts are just the best evidence of legally enforceable agreements. In fact, they are treated as the only evidence of an agreement. Lawyers, judges and everyone else who interprets contracts use the “four corners” rule of contract interpretation, which states that one should not look beyond the four corners of the contract’s page to understand what the parties meant when they drafted it. All oral agreements, handshakes deals, “understandings,” unwritten cultural or regional assumptions, and other pieces of evidence that may add color to the meaning of the contract don’t matter - they are not within the four corners of the contract and so, they are irrelevant. The presumption is that if the parties wanted something to be part of the agreement, they would have written it down.
(FYI: this is an excerpt from my 15-page e-guide, “Seven Ways to Better Deals”, which you can get for FREE when subscribing to my Weekly Newsletter.)
Now, because the contract plays such an important role in understanding the agreement, its correct interpretation across time and cultural differences is crucial. A contract may be in effect for years - sometimes tens or even hundreds of years - as words come into and fall out of use and are redesignated in the common vernacular. The best contracts therefore cannot afford to use unclear language that may be interpreted in differently depending on who reads them - no irony, humor, or slang is allowed. The best contracts are boring.
Because contracts need to stand the test of time, they need to be entirely self-contained when it comes to setting up the definitions of the terms that they use. It might seem silly to define the word “Building” to mean the only building that exists on the parcel of land you’re leasing, but if there are building developments in the area in the next few years, an undefined building would be hard to point to by someone who wasn’t in the room when the contract was drafted, or so someone might argue in court (which is what contract try to avoid). In addition to definitions, contracts create their own standards and thresholds of behavior so that you won’t need to look beyond the “four corners” to understand what it means to be, say, in default of the contract. If the standard is “material default past all grace and cure periods,” it leaves no room for argument by the defaulting party trying to look for a way out.
Often, contracts refer to other contracts in existence, as a way to continue a string of promises by adding to them. It is good practice to attach the referred-to contracts as exhibits so that it becomes part of the contracts that mention them.
Now, there are several ways to think about who the primary reader and audience of a contract is, and how a contract is being interpreted. When things are going well, and everyone is happy, the audience of a contract are the parties who use it as a mere “guiding light” for maintaining an amicable relationship. When (not if) things turn sour, the contract is used as a tool of accusation or of defense, where parties look to the contract for arguments against the unwelcomed behavior of their counterparts, or seek interpretations that justify their behavior. If (not when) things turn really ugly, the contract is used as the primary source of evidence for courts to rule in favor or against claims of breach and award monetary damages or other relief. That’s why, in short, business contracts should have no room for ambiguity.
