You probably already know why people hate contracts, but a colleague of mine dropped something on my desk this morning and I couldn’t help but share it with my adoring fan (or perhaps “fans”).

Here is a paragraph he re-wrote for a contract of which he was to be a part (so it was in his interest for it to be comprehendible):

(1) E retains all right, title and interest (subject to the license granted herein) in and to any and all content, inventions, articles, reports, summaries, headers, reviews, categories, documents, works of authorship, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by Expert before the term of this Agreement in connection with the Services (collectively, “Content”) provided by E under this Agreement. (2) H retains all right, title and interest (including all intellectual property rights throughout the world and, for clarity, any content created by H as a result of interviewing E) relating to any and all content, inventions, articles, reports, summaries, headers, reviews, categories, documents, works of authorship, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by H. (3) E hereby grants to H, and H accepts, an exclusive, worldwide, assignable, sub licensable (through multiple tiers), royalty-free, perpetual, irrevocable license to display, publish, use, reproduce, distribute, transmit, enhance, modify, create derivatives of, provide user access to, and otherwise exploit, in every manner and medium now or hereafter known, the Content and any updates or derivatives that E has previously and may from time to time provide to H. (4) E will assist H, at H’s expense, to further perfect such license and to maintain, enforce and defend any rights licensed. (Notes: Sentence numbers were added for ease of reference during the rest of this post.)

OOF! Does anyone (other than the lawyers) know what that means? You could probably figure it out if you had enough free time, but if it was presented to you as part of a larger contract and you were supposed to sign it on the spot, would you know what you were signing? Probably not.

Consequently, my colleague translated it into language that a normal person could understand. Here is his version of Sentence 1:

E retains all right to any and all content made in whole or in part by E before the term of this Agreement in connection with the Services provided by E under this Agreement.

That still reads a bit like legalese, but at least you can comprehend it! Let’s look at his translation of Sentence 2:

H retains all right relating to any and all content made in whole or in part by H.

That’s pretty straightforward—if H made it, it’s H’s property. Period. Here’s Sentence 3:

E hereby grants to H and exclusive (yet assignable) license to reproduce, distribute, or modify in every manner the content that E may provide to H.

That, too, makes a lot of sense. (Sentence 4 was unmodified.)

So that enormous, incomprehensible paragraph above? It just says that E and H are going to work on something together and that while they are working together, H gets to use anything E provides to H, H gets to keep its own material, and H can’t use material E produced before they started working together. And that’s pretty much it.

Friends Don’t Let Friends Write Bad Contracts

Personally, I think people should be able to read and understand their contracts. And although the translations of those sentences above don’t quite provide the same exact rights and duties, they are darn close, probably without any actionable difference if the agreement is contested.

So if you need a contract written or need to sign one, find a lawyer who will actually help you translate it into a piece of understandable writing. You are far more likely to have a negotiated agreement (as opposed to an adhesion contract, which is not negotiated) signed if the parties can both understand what it says.

(photo: http://www.flickr.com/photos/mindaugasdanys/3766009204/)

As readers of this blog are aware, I produce a weekly post called Fine Print Friday, which examines the terms and conditions of consumer goods and services, and outlines provisions of note—I read the contracts so you don’t have to. But now it turns out that some companies understand the value of this service, and have started doing my work for me.

This morning I received an email from Groupon notifying my of an update to their Terms of Use and Privacy Statement (PDF). They even provided a summary of the updates in plain language, so everyone can understand them. Of course, Groupon has only done this to explain the updates to their policies, but it’s a great idea—one which should be adopted by many more companies.

So Groupon gets two thumbs up from Pro and Contracts. Let’s hope their example is followed by other companies.

In a pair of arbitration rulings on October 26, 2010, the Minneapolis School District was determined to be in breach of its contract with its teachers, owing approximately $17 million in back wages. The school district apparently decided that due to budget problems in 2009, it would not be able to pay its teachers their contractual raises and merit pay under Minnesota’s Quality Compensation for Teachers law (also known as “Q-Comp”).

Q-Comp provides additional state aid (up to $260 extra per student) for the schools where it is implemented. The extra income is an incentive for the schools to implement the new teacher compensation method. So the Minneapolis schools would have been taking in a significantly higher amount of state aid than schools not using Q-Comp.

In a typical contractual relationship, we would call the additional state aid consideration, which is what is given up to convince the other party to act. At a basic level, Q-Comp involves the state giving up money in the form of additional aid in return for the school district agreeing to alter it’s pay structure–the school district receives benefits if it changes its behavior.

The breach occurred here when the Minneapolis schools did not fully implement the Q-Comp payment system. Had they not been receiving the additional state aid, then they may have been able to argue that they were not compelled to change those payments. But presumably the school district did receive the additional aid, but then decided not to fulfill its side of the agreement.

Although some may criticize the teachers’ union for pressing this issue when the schools are under such budgetary pressure, it is probably good that they addressed it now rather than when it becomes even more burdensome.

Lesson of the Day: If you are going to enter into a contract with someone, fulfill your side of the deal so you don’t end up owing someone $17,000,000.

(Photo by WorldIslandInfo.com)

I understand that this post’s title may seem strange, given my weekly post examining the fine print for major consumer services or products. That said, a recent post regarding the problems with fine print in software user agreements spurred this reaction from me, which is not at all inconsistent with my goals as an attorney focusing on contracts.

I understand well the frustration with not only the absurd volume or provisions in these things, but also the amazing laundry list of rights each of us gives up every time we agree to one of these contracts.

That said, there has been a small movement starting recently regarding the simplification of contracts, making them clear enough for the consumer to understand without the aid of multiple readings or an attorney. This has the effect of ensuring that the consumer understands what his or her rights and duties are, as well as actually making it more difficult for the consumer to litigate against it. That’s because the consumer no longer has the argument available that s/he did not understand what s/he was agreeing to. And if a consumer doesn’t bother to read a simple, one-page contract, then that is unreasonable neglect that may not be present in 25-page monstrosities.

It is not at all unreasonable that consumers should be able to demand this sort of clarity in their contracts. Nor is it unreasonable for corporations to simplify their contracts to make their customers and the public at large happy.

(Photo by Infrogmation - I particularly like the gorilla.)

Twitter recently added a new policy addressing possibilities for the Twitter accounts of deceased users. Since I recently went through the rest of Twitter’s policies for Fine Print Friday, I thought it would be a good idea to briefly lay out the important points in their new new policy…in case you die.

1. Accounts can be removed or left up, and Twitter can assist with a backup of the account for the family of the deceased.

2. Anyone who wants to either the account removed or backed up will need to contact Twitter with his/her name, address, and relation to the deceased, the account name, and proof of death via an obituary.

3. There is nothing in the policy explaining how Twitter determines that a person is actually a relative, and whether any double-checking is done to ensure there is no unauthorized deletion or copying of the account.

4. Relatives will not be allowed access to the account, or to any other personal (non-public) information associated with or stored in the account.

And that’s it. It’s pretty straightforward for now, although not all that helpful. I expect it will be updated in the near future, especially given the comparison of this policy to that of Facebook for the same situation. See this article from CNN for a brief rundown on the differences between Twitter and Facebook with regard to deceased users, which is worth a look.

In a recent lawsuit, filed June 30, 2010 in Allegheny County in New York, Paul Ceglia requested a declaratory judgment enforcing the contract he made with Facebook founder Mark Zuckerberg, giving him 84% ownership in the company, which is currently valued at $15 billion. (You can see the court filing and the contract here - PDF.)

The first question is, is the contract real? And the second question is, is Ceglia misinterpreting the contract?

After not being able to find an image of Mr. Zuckerberg’s signature anywhere, it’s hard to know whether the document is legitimate. It certainly looks like a contract. (See Exhibit B – “Work for Hire” Contract – PDF) And although Facebook will definitely fight this, if the court rules that it is valid, it will be potentially the most lucrative 2-page contract ever.

What is so curious to me is provision 3, that describes what will happen if the completion of the requested work (the building of a website through which students can communicate with each other) is late. It reads, “Late fees are agreed to be a 5% reduction for the seller if the project is not completed by the due date[,] and an additional 1% deduction for each day the project is delayed beyond that point.” This statement immediately follows the statement of the fee for the work, which is $1000.

My understanding of the contract, then, is that the agreed-upon price is $1000, and if it is late the price automatically decreases by $50, with an additional $10 subtracted per day until the project is completed.

Looking at the complaint, however, Ceglia has alleged that the 1% per day gives him an extra 1% share in “the software, programming language and business interests” of the project, which starts at 50% according to provision 2. (See page 2, and page 4, paragraph 8 ) That extra 34% Ceglian is requesting amounts to $5.1 billion, which is a pretty significant discrepancy that will assuredly be litigated heavily if this case gets to that point.

Unfortunately, that shows me that even if the contract is deemed real, valid, and enforceable (aside from the statue of limitations concerns), Ceglia is potentially requesting relief in bad faith, which calls his credibility into question from the start, particularly in light of his past legal problems.

This will be an interesting case to watch, but I expect it will involve a settlement at some point months from now, without any official determination of the validity of the contract.

**Update: An astute reader pointed out that the contract also provides for a 1% extra share in the business for every day the project is late. Of course, that means my initial concern about the reading of the contract was incorrect. However, there is still a question as to whether that sort of provision is proper. There is an interesting balance between the right of parties to contract in any way they desire, and the duty of the courts to make sure that contracts are not drafted so as to take advantage of parties who are not experts in the field (as well as the dreaded unconscionable contract). These concepts will be explored in future posts.