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Contracts should explain their terms as necessary

I couldn’t disagree more strongly with my friend Ken Adams’s comment that, apart from the opening recitals, “in a contract you don’t reason or explain. You just state rules.” That’s way too categorical a statement for my taste. Contracts are read and followed by people, not by computers, and people sometimes need to be persuaded to do the things they’re theoretically supposed to do. That’s where it can be extremely helpful to record reasons and explanations into a contract.

Suppose Company A signs a contract requiring it to do X. It won’t necessarily happen that way automatically. One or more people need to make X happen, and those people might balk at doing so:

  • Company A’s management might decide they want the company to do Y instead of X because of changed circumstances.
  • Or it might be that Alice at Company A negotiated the contract, but her colleague Allen is now responsible for making X happen, and Allen thinks doing X is a bad idea.

If Company A’s lawyer can think of even a faintly-plausible rationale for not doing X, the odds are that the company will simply fold its arms and say “nope.” (I speak from hard experience on this score.)

That’s where reasons and explanations can come in handy: If the contract explains the business reasons that Alice committed the company to doing X, there’s a better chance that Allen will understand her reasoning and go along with her commitment.

The same is true in contract litigation: Judges sometimes need to be persuaded too. This is especially true if there’s more than one way to read the contract — again, this is where reasons and explanations can come in very handy.

(Copied from a posting I did on a prior blog in May 2008.)

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