Contract Risk & Reality in Business Agreements

Contract risk is in the eye of the party to the contract—and that’s your client, not you. If you can’t see contract risk the way your client does, you are doing her a disservice, and possibly driving her away. You must see contract risk in terms of possible legal outcomes but also in the realm of business reality.

As a 1L, your Contracts class made you think like a lawyer. In other words, it brainwashed you into seeing the risk of disaster lurking around every corner. You must, you think, prevent that disaster from occurring. And you go to work every day with this risk management goal in mind.

But your client isn’t a lawyer, so, unlike you, she isn’t awakened at night by fears of one of your files ending up in a law school contract case-book. Your client probably hired you because she had to, for risk management, not really because she wanted to. And in a business transaction, she really doesn’t see you as a zealous defender of her risk management-driven legal position, but, let’s be honest, as a speed-bump in getting her contract done—she’d much rather focus on the new deal she has in the works than talk to you.

Reality can trump contract risk

Often, a business line rep where I work will negotiate all the business terms of a contract, then call me in to deal with the legalese, meaning the contract’s legal terms and conditions that relate to (for example) indemnification and limitations of liability. The rep usually has no idea what these terms mean. If I explain them to her, she’s likely to view the risks against which they protect as much, much less likely to ever come to pass than I, with my addled lawyer mind, do.

Recently I found myself in a heated argument with an obnoxious attorney over just such contract risk language. I took a break, carefully explained the disputed term to the rep, then asked her if she could live with what the other side’s attorney was asking for. She immediately said yes.

The contract was completed and the rep was relieved and happy. She had done business with this vendor for years, and she trusted that the mutually beneficial relationship would continue, once the lawyers were out of the way. The risk in her mind was not the same as the risk the contract language suggested. In “giving in” to the other attorney’s position (which was rooted, I believe, only in his need to “win” something) I best served the rep’s (and my employer’s) interests. What was the real contract risk to my employer based on the change in language? Close to zero, given the history between the two parties and the realities of business. Yet the other lawyer and I must have seemed intent on torpedoing the deal.

Your job is always to advise, not control, your client. Explain the contract risk as you see it, but ground your advice in reality, and make a point of conceding to your client that she may well know the other party, and therefore the risk, much better than you do. Help your client make informed decisions, while keeping your law school contract case-book nightmares safely tucked away under your bed.



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