Tuesday, December 21, 2010

Contract Readability -- Part 2

Contract readability is affected not just by the choice of words (common or obscure) or sentence structure (short or long and compound) but also by style. In their landmark work, What Makes a Book Readable (1935), William S. Gray and Bernice Leary identified 228 elements that affect readability, which they classified into four main headings:

  1. Content
  2. Style
  3. Format, and
  4. Features of Organization

The authors found that content, with a slight margin over style, is most important. Third in importance is format, and almost equal to it, “features of organization,” referring to the chapters, sections, headings, and paragraphs used to organize concepts and ideas.

The golden rules of human readability are generally well understood. JoAnn Hackos and Dawn Stephens in Standards for Online Communication (1997) summarizes the rules:

  • “Use short, simple, familiar words
  • Avoid jargon.
  • Use culture-and-gender-neutral language.
  • Use correct grammar, punctuation, and spelling.
  • Use simple sentences, active voice, and present tense.
  • Begin instructions in the imperative mode by starting sentences with an action verb.
  • Use simple graphic elements such as bulleted lists and numbered steps to make information visually accessible.”

However in many cases, drafters of legal agreements appear to go out of their way to violate these principles and make their documents more difficult to read. There are numerous ways drafters challenge human—and machine—readability.

  • Compound Clauses aggregate multiple clauses into a single clause (e.g. Governing Law; Venue; and Jurisdiction)
  • Overlapping Clauses are a variation of compound clauses that inconsistently combine clauses (e.g. (a) Entire Agreement; Amendments and Waivers, (b) Entire Agreement; Waivers, and (c) Amendment and Waivers)
  • Duplicate Clauses are similar clauses found in different parts of the agreement (e.g. Best Efforts and Further Assurances in the Transaction, Covenants and Miscellaneous sections)
  • Inconsistent Organization of Clauses occurs when articles are inconsistently named and grouped (e.g. Covenants, Covenants of the Buyer, Covenants of the Seller, Additional Agreements, Additional Agreement and Covenants)
  • Inconsistent Location of Clauses occurs when a clause appears in different sections of a document (e.g. an Amendment clause may appear in either the Miscellaneous or the Termination section)

When clauses are sometimes located in one place and sometimes elsewhere, there is a higher likelihood that important clauses may sometimes be missed.

Based on these principles, there is a set of clauses in legal agreements that are consistently the most inconsistently organized. The identity of these clauses will likely come as a surprise, because they are also some of the most basic provisions. They are the opening clauses in the Representations and Warranties section that cover the following concepts.

  • Status
  • Powers
  • No Violation or Conflict
  • Consents
  • Obligations Binding
Frequently these concepts are joined in every combination possible.

Atul Gawande’s Checklist Manifesto provides a detailed analysis of the use of checklists by professionals, including physicians and pilots. The author demonstrates how such simple lists can improve performance. As mentioned in an earlier post, the organization of a contract can also serve as a deal checklist. Moreover, the application of some simple rules can make contracts more readable and less prone to oversight.

  1. Organize sections in a logical (business-orientated) manner
  2. Apply a consistent organizing framework
  3. Separate elements into their most basic constructs
  4. Use numbers, bullets and other formatting methods to visually separate contract elements

1 comment:

  1. This post makes me think a good deal about two characteristics I often see in drafting:

    1. The "But I Digress" Style: This is defined by clause embedding, where the sentence will start out discussing one concept, then be modified by an internal clause, and the another, leaving the reader struggling to follow the train of thought, let alone having an absolute clear understanding of the obligations.
    2. The "Belt and Suspenders"/"Shock and Awe" Approach. When I was at one firm, I had a long debate one day with a senior partner who insisted that contracts should have as many internal section references as possible, and multiple clauses throughout the contract should address the same topic, in order to hammer home the point he wanted to make regarding that topic. This approach, though, results in the opposite of achieving his goal, as the contract becomes so frightfully complex that usually many of the section references end up being wrong as the drafts are revised, and the multiple clauses covering the same topic but written in different ways exponentially increases opportunities for ambiguity and multiple interpretations.

    From a negotiating standpoint, there is little I like better than an agreement organized with extremely clear cut, and accurate captions. I often find that an outline of captions can serve as a negotiating strategy template. And, clearly, such an approach is ideal for machine learning methods.