Tuesday, November 13, 2007

Tort and Retort

I have spent some time over the last few days reading over contracts relating to share purchase and shareholder's agreements, in the one company I operate as president in which I don't own all the shares. I find the stuff in these agreements to be alternately interesting, amusing and frustrating.

The documents have all been drafted by an attorney friend of mine who also happens to be a shareholder in the company. Her work is impeccable, thorough, and insightful. It's not her wording or the inclusion of any particular clauses or paragraphs that I have any problem with, it is the necessity of having elaborate agreements at all between individuals and corporations. Many contracts today are so complex that many of the individuals they are purportedly designed to protect have no idea what they mean. They have to hire an attorney to help them understand all the 'whys' and 'wherefores.' And then, inevitably, if a disagreement arises, two or more parties in opposition and their respective lawyers seek interpretation from a conciliator, a judge, or even a jury. If any agreement needs interpretation, it couldn't have been very clear in the first place. More likely, the law and its myriad twists and turns and prohibitions gets in the way of honest people engaging in honest transactions with each other.

I transact a lot of business without any sort of legal agreement. I make every effort not to interact with crooks and other miscreants in the first place, so I don't often have a problem. I have individual customers who spend up to a quarter of a million dollars every year and they can leave any time they feel that my company doesn't satisfy their needs. Unless customers of my various businesses expressly ask for a contract themselves, we don't ask for one. Why not? Because that way every client is free to seek better service elsewhere, if we let them down.

Most customers understand my reasoning. I don't ever want to become complacent. I want always to work really hard so that the customer returns, not because he is bound by contract but because he is getting excellent service at a reasonable price.

In a perfect world, we would all be able to depend on each other always to do the right thing. Note that I did not say the 'legal' thing. The two words are not synonyms. What is legal is not necessarily right and what is illegal is not necessarily wrong. Whether law and propriety ever coincide depends largely on which group of thugs is in political power at any given time. If everyone always did the right thing, we would have need of legal contracts only to establish things like succession, distribution of assets, and a few other things that would be needed if one of the parties to the agreement dies or becomes mentally incompetent to live up to his obligations.

We are living in a world in which we look outwards for protection. Instead of being careful with whom we associate, we count on contracts to protect us. Instead of thinking for ourselves, we delegate the task to political and bureaucratic masters. Instead of saving and investing for retirement, we count on Social Security to support us. And so on.

I don't like any of this, but it is the way of the world today. I prefer to be able to count on a handshake to seal any deal or promise. That level of trust is becoming increasingly rare. And those who would take advantage of such an arrangement are not so rare anymore. I guess that is why I am reading through all these legal documents. Even though I respect and trust all of the other shareholders, this is the way things are done these days. I better get used to it.


  1. I agree about the handshake - a gentleman's agreement is so much more elegant and dignified, imho.

  2. Words are like fiat currency units: The more of them, the less valuable they are.
    This is my rule of thumb when dealing with contracts, whether it's a credit card agreement or an EULA. They are almost ALWAYS written to advantage the seller.
    Most of them would be totally unnecessary if the party that had them drawn up was honest enough to do as you suggest - Mean what you say, and say what you mean, then back it with action.

    And don't even get me started on the weasel-word masters in the legal profession!

  3. I think I'm just living in the wrong century. I just got off the phone with a partner I have in a real estate venture. He and I have no written agreements whatever, other than that we are both on title to the property. We trust each other completely and have a great relationship. Irony: He's a Muslim. We postponed a meeting last month because we usually meet in a coffee shop and since it was Ramadan, he fasted during the day.

    We really need to get back to the basics, where we earn each other's trust. Race, creed, colour, etc., are (or at least should be) irrelevant.

  4. You just had to bring the subject of contracts, didn't you? (grin) Mark and I just spent an entire day carefully reading through, analysing and changing the latest agreement presented to us by the gas field. It had doubled in length from the last one and, oddly enough, barely any of the new terms were kindly to us unless mandated by recent legislation. Gee, who would have thought.

  5. I had a piece of land back in the early 1970's, Lin, on which an oil exploration company paid me one dollar per acre per year. That gave them the option to drill for oil if and when they ever felt like it. They never did, and the amount of money I got every year barely covered my time to read the damn contract, no doubt one much like the one you have. That was quite an education.