How Not To Draft Contracts

Recently, a client wanted me to look over a “right to cancel” clause for the installation of energy saving feature for his home. My client is a smart person and typically doesn’t have any problems in reading/understanding contracts or “legalese”. He emailed me the following two paragraphs:

11. NOTICE OF RIGHT TO CANCEL. YOU MAY CANCEL THIS AGREEMENT AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE YOU SIGN THIS LEASE. SEE EXHIBIT 1, THE ATTACHED NOTICE OF CANCELLATION FORM, FOR AN EXPLANATION OF THIS RIGHT.

12. [Company’s] EXPANDED RIGHTS TO CANCEL. BECAUSE [COMPANY] CARES SO MUCH ABOUT IT’S CUSTOMERS, IN ADDITION TO ANY STATUTORY RIGHTS YOU MAY HAVE TO CANCEL THIS AGREEMENT, AS A [COMPANY] CUSTOMER YOU MAY CANCEL INSTALLATION OF THE SYSTEM OR (II) APPROVAL OF FINANCING ASSOCIATED WITH YOUR PURCHASE OF THE SYSTEM AND/OR AN INTIAIL DISBURSEMENT OF LOAN PROCEEDS RELATED THERETO. Notwithstanding the foregoing expanded rights to cancel this Agreement, in the event you agree to have complimentary or appurtenant equipment (“Complimentary Equipment”) installed by [cOmpany] or its affiliate prior to the commencement of the installation of the System, upon the commencement of the installation of the Complimentary Equipment you shall no longer have a right to cancel this Agreement, other than as provided in Section 11 hereof. As examples rather than to provide an exhaustive list, the term “Complimentary Equipment” may include equipment and technologies such as sprinkler system monitoring equipment and HVAC monitoring equipment.

After reading through the two clauses, the fact that my client had a hard time understanding what they meant was not surprising at all. When I read it, I could find two or three reasonable interpretations of the clauses that each would have very different outcomes.

Section 11. is pretty straightforward. It is a good clause that describes in a concise manner at which time your right to cancel expires in a normal agreement. I can tell that section 12. was drafted by someone completely different. Section 12 is wordy when it doesn’t need to be wordy, it tries to tell a story when there is no need to tell a story, it isn’t consistent in the use of words that ought to cover the same thing, and it reads like a couple of very long run on sentences that make it hard to read.

Let me explain myself. I have uploaded a document that shows which phrases are problematic and the document can be accessed here. The real problem with this clause is that the words, “Agreement” and “Installation” being used interchangeably. The title says right to cancel the agreement, but the clause talks about rights to cancel the “installation” and “approval of financing” or “initial disbursement”. This confuses the rights given. Do you have the right to cancel the agreement or do you have the right to cancel the installation, disbursement, and approval?

Signing a contract

In addition, the drafter could have just started with the words, “You may cancel…” everything prior to those words are fluff and are not relevant. The additional language serves to confuse and tell a story which is not the correct function of a contract.

When you are reading a contract, think to yourself, how much of this is “noise” and how much of this actually defines a right or a duty under the contract? Nearly all of the language should go to define the rights and duties of the contract.

I want the takeaway from this to be, contracts are only functional if they are understood by both the parties. To the extent that they confuse, make ambiguous, or leave lots of room for interpretation or rely on “implicit” meanings, they become more and more vulnerable to undermining their purpose. In general the populous would be better served with contracts that had shorter sentences, less legalese, and focused on the rights and duties of the parties.

Posted in Business Law, Contracts Tagged with: , , , , ,