And why custom contracts are worth the investment
I always shudder when someone tells me that they are using contracts for their business that were downloaded off of the internet.
You’ve seen them. Heck, maybe you’re even using one right now.
Downloadable Contracts come in a few different forms. Some are free. Some cost anywhere from $25 to $500. Many promise that their awesome template is “customizable” which really just means that there are Madlib-style fill-in-the-blanks or software that auto-fills responses based on your answers. An increasing number promise that this will be so much cheaper than hiring a lawyer but you’ll magically still get the same level of protection. Words like “professional”, “safe”, and “secure” are generously distributed throughout the sales page alongside pictures of smiling entrepreneurs.
Despite the promises, Downloadable Contracts bother me because they commonly have one or more of the following problems:
1. They don’t properly identify the Parties.
This is one of the most basic things a contract does. There are a lot of Jennifer Johnsons and James Williams out there. Even if you and your counterpart don’t have common names, it’s useful to be clear about whose signature is going on that dotted line. Thorough contracts specify who they are talking about by including addresses and entity types.
2. They use ambiguous language.
Hereby, hereunder, wheretofore, heretofore, witnesseth. Yikes. Here’s the problem with this: contract drafting is not a fancy language contest. Contract drafting is a clarity contest.
One of the most important audiences for a contract is the judge who may one day have to interpret it. If a contract is riddled with old English that obscures and hides the meaning, the judge is more likely to decide that the contract is “ambiguous”. If the contract is ambiguous, that gives the judge a lot of latitude to decide what the parties were trying to say. Now the business dispute is in the hands of a judge trying to decipher a sloppy contract, which really defeats the purpose of having a contract in the first place...
3. They contain unenforceable sections.
Downloadable Contracts don’t account for the different legal systems in the United States. The US has fifty states, the District of Columbia, and fourteen territories - all with their own laws. Particularly problematic are non-disclosure, non-compete, confidentiality, refund, and subscription clauses. These topics are heavily regulated in certain states and those states will refuse to enforce contracts that do not comply with their laws.
4. They botch the intellectual property section.
If you have a service-based business, there’s a good chance that your business involves intellectual property. For example, business coaches provide courses. Photographers provide photographs. Apps provide software. All of the above fall under copyright law.
If a business is providing intellectual property to someone else (e.g. a client or a customer) a solid contract typically covers both copyright ownership and copyright licensing. Downloadable Contracts often botch the nuances involved in this process. For example, what kind of copyright license is it? Is that license good worldwide, or just in a particular state? Is it exclusive or non-exclusive, sublicensable or transferable? These kinds of details require customization.
5. They default to arbitration.
I’ve noticed that a lot of Downloadable Contracts have arbitration provisions. Now there can be good reasons to choose arbitration, but it really depends on the type of business. A lot of people don’t know that arbitration is binding, which means it cannot be appealed. It’s also confidential, which means you can’t get the court of public opinion on your side. Finally, the average person still needs to hire a lawyer in order to succeed in arbitration. Unlike with a normal court, you actually have to pay the arbitrator. This means that while arbitration may be less expensive than court, it’s certainly not cheap and comes with some major trade-offs.
7. They are not specific enough.
If you have a service-based business, you’ve probably experienced mission creep. You know, that moment when Client X booked you for a job, but then the Client X keeps adding more stuff or moving the goalposts as you’re working on it. Suddenly you’re doing a lot more work than you were paid to do and you’re feeling a little salty about it.
A well-drafted contract is meant to prevent this by being specific about the job. But Downloadable Contracts often use vague phrases like “services” without defining what the services are. Or they punt to some future document that is supposed to be signed later, but the parties never follow-up on that. The result: mission creep.
This was a long rant disguised as a blog post, but these are some of the reasons why I’m a fan of custom contracts. In my experience, even the most simple business model or the smallest non-profit has particulars that Downloaded Contracts struggle to account for.
That being said, I do run a tech-forward law firm. So I like to think that one day software will evolve to a point where truly custom contracts can be offered in a tech solution. My guess (and I’m not at all qualified to speak in this area, I’m just a business lawyer) is that artificial intelligence may be a prerequisite to really make that happen.
Until then, I will continue to rant about Downloadable Contracts.
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