Introduction: Words Matter Most
According to the Wall Street Journal,[1] some lawyers are turning to cartoon frames and comic strips to illustrate (pardon the pun) key contract terms. Conveying information through pictures is nothing new. After all, “a picture is worth a thousand words.” A cartoon can garner focused attention and helps provide levity, perhaps softening the legalese conducive to glazed eyes and other reading maladies.
Illustrations may be helpful in certain legal contexts, such as employment relationships, equipment delivery contracts, and intellectual property. Whether it is a picture of someone showing up on time as required, a picture showing what type of goods are to be delivered, or a logo image, these illustrations can assist both sides of the contract in understanding the concrete implications of otherwise abstract verbiage. But to achieve the proverbial “meeting of the minds” and for optimal legal enforceability, words matter most. But which words? Here are ten contract essentials, best communicated through words (but a cartoon frame or two might not hurt either).
1. In the Beginning
First, correctly identify the contracting parties. Official corporate names can be verified through government agencies (e.g., in Illinois, through the Illinois Secretary of State). In addition, list important background information in the “Recitals” or “Whereas” sections. Such prefatory information is not typically considered as part of the contract’s enforceable terms, but may become so by agreement. The recitals are helpful as contextual background and for the parties’ mutual understanding of the contract’s goals and anticipated deliverables. (E.g.,“Whereas, the parties seek to collaborate on a clean water initiative, as described herein, and Nonprofit A has equipment and personnel available to deliver services as described herein.”)
2. What . . .
Precisely describe what will be delivered or done, and by whom. Such information may be provided within the main body of the contract, or through an attached “Exhibit” or “Schedule.” The information may be labeled as “Scope of Services,” or the contract may provide a list of things to be done. (E.g., “To develop research on ‘X,’ with accompanying written report and underlying research data”; or “To develop public relations materials including the following: ___________”).
3. When . . .
Identify important dates or term periods. Include specific deadlines that are important for any deliverables or events to occur. Some contracts use bold fonts to clearly set apart key dates. Note that many contracts are for a specified term length, such as a real estate lease that may be for one year, five years, or longer. Contracts may further include a provision for renewal, such as within 90 days or some other time period for one party to give notice to the other party of a desired term renewal. Beware of “auto-renewal” provisions, which can come up as quite unpleasant surprises.
4. Who . . .
Good contracts allocate responsibilities among the parties. Stated differently, who will do what and when? Within the nonprofit context, one party may be responsible for all of the fundraising needs of a specified project. The contract should allocate provision of labor, insurance, accountability for use of funds, preparation of reports, and time-sensitive tasks.
5. Money matters
A contract must address the financial aspects. Is one party expected to pay the other party? If so – how much, when, how often, and based on what deliverables? If a contract provides for a large deliverable (e.g., construction work to be performed over time, a website to be developed), it may be helpful to provide for “progress payments” rather than one lump sum payment made early within the contractual term. If the contract is for a joint project, it should state whether both parties equally responsible for bringing money into the anticipated project or transaction, and how financial contributions be handled differently (e.g., the parties anticipate obtaining loans if needed). The contract should also describe distributions of any resulting funds.
6. Shhhh . . .
Contracts may contain confidentiality provisions, especially if the parties share donor lists, trade secrets, or financials. If confidentiality is important, then say so: specifically name what information is to be kept secret, by whom, and for how long.
7. How About Intellectual Property?
Creative works such as brochures, website development, photos, written materials, and songs should be well addressed in terms of both ownership and usage rights. As with confidentiality, the contract should specify the subject information – perhaps categorically or per an attached list or schedule. The contract should identify who is (or will be) the owner of such works. In addition, the contract may specify the other party’s right to use such works, such as through a licensing for free (or for royalty fees), irrevocably as that party may wish (or not – that is, revocable), and exclusively (or not – such as shared with the owner and perhaps others).
8. What If?
The contract should provide for an exit strategy. If one party breaches the contract (that is, fails to deliver on its promises), what must happen? Typically, but not always, the breaching party has a right to receive written notice from the non-breaching party, and then has a “right to cure” (fix) the problem. Make sure the contract protects both parties’ rights, particularly in the event of an unintended breach.
Consider too how the contract could be ended early. For example, is there a penalty for terminating the contract early? Sometimes a contract will provide for “liquidated damages,” a stated amount that both parties agree to pay prospectively as the appropriate amount of damages, which can be helpful.
Good contracts frequently include dispute resolution language, such as requiring mediation as a precondition to litigation, providing binding arbitration instead of litigation, and potentially exceptions for urgent matters such as injunctive relief for violations of confidentiality.
Be careful about contract provisions allowing for attorneys’ fees. Such provision may be helpful if it is for the prevailing party – the one who wins. But if such provision allows for each other party to recover attorneys’ fees just for pursuing its contract rights, that could be quite intimidating for the other party who has a valid defense but is intimidated by the specter of attorney fee liability.
9. Signatures
The contract should be signed by all parties, together or through countersignatures. Corporate signatories should be duly authorized agents who specify their corporate capacity in the signature block. Contracts failing to designate corporate capacity may result in personal liability for the signer. Contracts may be signed electronically or “wet” (i.e., original signatures). It may be helpful too for the parties to initial each page.
10. Trustworthiness and Final Thoughts
More important than the paper on which an agreement is written, the trustworthiness of parties is critical. We recommend parties perform due diligence in advance to ensure the other party will deliver as promised. Finally, what safeguards can or will you take in the written contract to protect your own interests against later problems? Words are critical, and a picture may convey important information too. But the highest value may come from trustworthy, reliable, and well-informed relationships.
[1] Wall Street Journal, "Lawyers Turn to Comics for Help With Boring Contracts"
