Dealing with Contracts: A Guide to Complex Contracts

Contracts serve as the foundation of legal agreements, outlining the rights, responsibilities, and expectations of the parties involved. The question often arises: Do contracts need to be complex? While the complexity of contracts can vary based on the nature of the agreement, finding the right balance between clarity and detail is key to creating effective and enforceable contracts.

The Role of Clarity

At the heart of any contract is the need for clarity. A well-drafted contract should leave no room for ambiguity or misinterpretation. Parties entering into an agreement should have a clear understanding of their obligations and the consequences of non-compliance.

Clarity begins with language. Contracts should use precise and straightforward language that is easily understood by all parties involved. Technical jargon and legalese can often lead to confusion, rendering the contract less effective. When drafting contracts, an attorney’s goal is to communicate the terms in a manner that can be grasped by individuals without a legal background.

The Need for Detail

While clarity is paramount, contracts also require an appropriate level of detail to address potential scenarios and ensure comprehensive coverage. The level of detail needed can vary widely depending on the complexity of the agreement and the nature of the parties’ relationship.

In some cases, a simple contract outlining the basic terms and conditions may suffice. However, certain agreements, such as business partnerships, mergers, or real estate transactions, often demand a higher level of detail to cover intricate aspects and potential contingencies.

Striking the Balance

The challenge in contract drafting lies in striking the right balance between simplicity and comprehensiveness. Overly complex contracts can lead to confusion, disputes, and even legal challenges. Conversely, contracts that are too simplistic might omit important provisions, leaving parties vulnerable to unforeseen circumstances.

To strike this balance, attorneys often follow these principles:

  1. Tailored Approach: Each contract should be tailored to the specific needs of the parties and the nature of the agreement. A one-size-fits-all approach may result in unnecessary complexity.
  2. Clear Definitions: Clearly define terms and concepts within the contract to avoid misunderstandings. A glossary of key terms can be helpful.
  3. Hierarchy of Terms: Organize the contract with a hierarchy of terms, ensuring that fundamental obligations are stated clearly while providing more detailed provisions in subsequent sections.
  4. Incorporate Examples: Including illustrative examples can help clarify complex concepts, making the contract more accessible to all parties.
  5. Contingency Planning: Anticipate potential scenarios and outline the steps to be taken in case of specific events. This can provide clarity and guidance in case of disputes.
  6. Consistency: Ensure consistency in language and terminology throughout the contract to enhance understanding.

Conclusion

In the realm of contracts, the goal is not to create complexity for complexity’s sake. Instead, the focus should be on creating contracts that are clear, concise, and effective in capturing the intentions of the parties. While some agreements may demand a higher degree of detail, the guiding principle remains the same: to craft contracts that provide clarity without sacrificing comprehensive coverage. Whether simple or intricate, a well-drafted contract is a powerful tool that helps parties navigate their legal obligations and protect their interests.

Video Transcript

Is It Necessary to Have a Complex Contract?

When Can Contracts Be Broken?

They can be broken when there are no damages. That is one scenario. Second, contracts can be broken when they are impossible to perform. Not impractical, but impossible. Let me give you an example of that.

Let’s say you said, “Aaron, I will pay you $500 to be on this ship, which departs on Friday and will arrive at its destination on Saturday. I will pay you $500 to be on that ship.” Well, let’s say that ship never made it to the United States. So it is not going to be here on Friday and it can’t possibly depart on Friday. It is impossible for me to perform that. That is a scenario of impossibility. Impossibility is a lawful excuse for not performing under a contract.

But impracticality is different. Let’s say, for example, I offered to sell you four electric bikes for a $1,000 apiece. So total of $4,000, and I did that based on my belief that I could get those same bikes for $700 apiece. But let’s say I later find out that they are now $1,500 a piece. Well, it is impractical for me to fulfill that contract because I will actually lose money on the deal. Is that a valid reason to get out of a contract? No. Impracticality is not.

When Contracts Turn Complex

There are some scenarios there that are kind of in the gray area. Let’s say, for example, I said, “I will hire you to dig a trench from my house to my garage, and it needs to be 10 feet.” And you say, “All right, I can do that. It will be $1,000.” Let’s say hypothetically, as you are digging through, you run into some solid rock, and you find out it is going to cost you $10,000 to get the equipment needed to go through that rock and actually drill or excavate that trench for 10 feet. 

Is that impossible or impractical? Well, it is impractical. But here is the thing. Neither one of us knew in this hypothetical that there was going to be solid rock there. We both reasonably assumed that it is just going to be some dirt, sand, clay. And so in that sort of case, where there was a mutual mistake regarding the understanding of the performance of the contract, mutual mistake is a reason that you can get out of a contract or contracts can be broken. Not unilateral mistakes and not when one party makes a mistake, but when both parties make mistakes, usually performance of that contract is excused.

Immaterial Breach

So there is also one other reason when a contract can be broken. If the other side materially breaches the contract first, then you don’t have an obligation to perform your part of the contract. I will give you an example. Let’s say the contract says, ” If you pay me a thousand dollars, I will give you ten T-shirts. And let’s say you had to pay me the $1,000 on Thursday and I give you the ten t-shirts on Friday.” Well, if you don’t pay the $1,000 on Thursday, I don’t still have to perform and give the t-shirts on Friday. You failed to do what was at the heart of the agreement. Your essential obligation in the agreement was to pay me money for those T-shirts on Thursday. And if you didn’t do that, I am relieved from having to give you the T-shirts on Friday. But let’s say you gave the payment of $1,000 on Friday morning at 5 a.m. instead of on Thursday. Then the question was, “Well, was that really a material breach?” It was a breach. It was delayed. But if it didn’t make a big difference, it is an immaterial breach.

Sometimes contracts have a clause which goes like this: “Time is of the essence.” That is a magic legal phrase, which means you must pay exactly by the time required or you must perform exactly at the time required. And if you are even a little late, it is a material breach. But if a contract doesn’t have a “Time is of the essence” clause, then a slight delay in performance is usually considered an immaterial breach, or the type of breach that doesn’t matter much. So the other side is not excused from performing.

Material Breach

Let me give you an example of one more material breach. Let’s say that a county fair hires a printing company to print flyers to be delivered to email boxes before the fair to publicize the fair. And let’s say that the flyer has a really big mistake on it. Maybe they accidentally had profanity. Maybe it has the wrong date. Maybe it has some embarrassing errors. Whatever it is, the flyer has a big mistake. The printing company will argue, “Hey, we did our part. We produced the flyer. Yeah, we made some mistakes, but that was just a little bit of ink on each one. We generally fulfilled our obligation here.” Does the county have to pay for that? That flyer would probably be a material breach because assuming that it wasn’t the flyer that the county ordered.

And in that case, even though a flyer was produced in time, because it did not follow the specifications required by the county, that would probably be considered a material breach, and the county would be relieved of paying for that. But let’s say there was a slight grammatical error or a period was missing where it really didn’t matter. That would be a breach, but it is immaterial. It is insignificant. It really doesn’t matter. And so the county would have an obligation to still pay, even though there was an insignificant breach.

That is why it is so important to figure out is a breach material or not. Usually, it takes an attorney to figure it out. The test is, did the breach go to the heart of the agreement? Did it go to the essential expectation of the party? If the breach did and the party’s essential expectations are violated, then the breach is material and the other party is excused from performing. 

So when can contracts be broken? When they are impossible to perform. When there is mutual mistake. When there are no damages. And then finally, when there is a material breach of the contract, the other side doesn’t have to perform.

Conclusion

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