ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, March 24, 2015

Guest Post - Tina Stark on Contract Drafting at the Intersection of Law and Business

The following guest post is from Tina Stark, a Professor in the Practice of Law (retired) and the Founding Executive Director of Emory's Center for Transactional Law and Practice.  Tina is one of the pioneers of teaching transactional skills and the founder and first Chair of the AALS Section on Transactional Law and Skills.  She is also the author of Drafting Contracts:  How and Why Lawyers Do What They Do  and the editor and co-author of Negotiating and Drafting Contract Boilerplate  Welcome, Tina!

 

When I speak about contract drafting, I often state that contract drafting sits at the intersection of law and business. Students can learn about style, organization, process, interpretation, ambiguity, and clarity, but if they don't know the law and understand the deal, the contract will be ripe for litigation. 

 In  Buckingham v. Buckingham, 14335 314297/11, NYLJ at *1 (App. Div., 1st, Decided March 19, 2015), a well-known matrimonial lawyer botched the drafting of a prenuptial agreement. As drafted, the relevant provision stated that if the husband sold "MS or any of its subsidiaries or related companies," he was obligated to pay the wife a share of the proceeds. But the provision did not address the consequences of the husband's sale of any shares he owned in those businesses. Stated differently, the agreement gave the wife the right to proceeds from asset sales, but was silent about the right to proceeds from stock sales. 

 The couple married; time passed; and the marriage failed. Along the way, the husband sold shares of his business and the ex-wife wanted her share of the proceeds: about $950,000. The husband and the courts said "no." The court reasoned that the relevant language created a condition to the husband's obligation to pay sale proceeds to his ex-wife, but that language encompassed only asset sales. Therefore, because the husband's sale of shares did not satisfy the condition, the wife had no right to any proceeds. (Technically, there was a condition to an obligation and an obligation. The condition to the obligation was an asset sale, and the obligation was the husband's obligation to pay the wife a share of the proceeds. The husband's obligation to pay created the wife's reciprocal right to receive the proceeds.)

 As the dissent points out, the business deal was almost undoubtedly that the wife was entitled to money if the husband received proceeds from a business disposition. But the court held the provision unambiguously applied only to business dispositions that were asset sales, and it refused to rewrite the provision. Bottom line: the wife’s lawyer didn’t know the law. She didn’t understand the difference between an asset sale or a stock sale and language embraced only the former. This is a classic case of a business issue driving the litigation, not unclear, ambiguous drafting. It was “bad” drafting, but not for reasons of style, lack of clarity, or ambiguity. It was “bad” because it didn’t memorialize the parties’ intent. 

 And that's why matrimonial lawyers need to understand business and business law and how drafting sits at the intersection of law and business.

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