August 27, 2007
Contract Signing Protocol
[This is part of my serialized materials from my talk on Ethical Issues in Contract Drafting and Negotiation]
We focus so much on deal substance and style that we often lose sight of the problems that can arise at the most critical time of all—when pen is hitting paper. If a lawyer mishandles contract execution, it can lead to a malpractice claim, professional discipline and a very angry client (or, more likely, former client). Therefore, this document proposes a step-by-step protocol to make sure that the contract signing stage is handled correctly.
Step 1: MAKE SURE YOU GET THE RIGHT VERSION OF THE CONTRACT. This can be particularly challenging when a number of drafts were swapped at the 11th hour; it may not be entirely clear which draft everyone is officially blessing.
Step 2: If you haven’t had drafting control over the last version, read the version to make sure it reflects all changes accurately. If you are the lawyer presenting the contract to the client for signature, everyone expects to ensure that the client is signing the right version with all negotiated changes. Stated differently, I don’t think a lawyer can credibly blame the other side if the signed draft has errors, even if those errors didn’t show up on the redlines. As a result, when I was in-house counsel, I typically read the agreement from top-to-bottom to make sure that the draft didn’t have any unexpected changes that didn’t show up on the redline. This was time-consuming and usually a little painful, but I did occasionally mistakes in the supposedly execution-ready draft.
Step 3: Make sure all internal signoffs have been procured and ensure availability of person with signing authority. This is especially critical when the parties are rushing to get the deal completed by a fast-approaching deadline. It can be embarrassing at best, and deal-killing at worst, to find that the proper signatory or internal gatekeeper cannot be found by the stated deadline.
Step 4: Prepare a clean version.
Step 5: Decide which side is going to sign first. Of course, this is unnecessary if the agreement is being executed in counterparts.
Step 6: One approach: send 2 copies of the final version to the other side
• include a cover letter with instructions
• include visual cues (such as flags) indicating where they need to sign
• include return envelope if you want an original back
Originating the signature copy has the advantage of ensuring that the right version is prepared for signature. Otherwise, you may need to reread the half-executed agreement you get from the other side before blessing for signature.
Step 7: When returned, get your client to sign and return one copy to the other side.
A DEAL ISN’T “DONE” UNTIL YOU SEE A FULLY SIGNED AGREEMENT
(or, better yet, cash in the bank)
As a great example of this, see International Telemeter v. Teleprompter, 592 F.2d 49 (2d Cir. 1979). Kirsch’s client told Kirsch that it had signed a settlement agreement, but Kirsch didn’t get the signed copy into his possession. Kirsch then relayed the alleged good news to the other side. However, Kirsch’s client had a management change before delivering the signed copy, and the new management balked at the settlement. This left Kirsch in the middle—he had told the other side that the agreement was done (and had authority to do so), but his client had reversed course and was saying the deal was never signed. Not only did Kirsch’s eagerness cost Kirsch a client (he resigned), but he has very few defenses if his former client sues him for malpractice based on being committed to a deal they didn’t want.
This issue also comes up with press releases—no public announcements of a completed deal until you see the fully signed contract.
Step 8: Make sure the signed version gets filed properly. A signed contract that can’t be found when needed isn’t very useful. I can’t tell you how many times I looked in the files for a signed contract and instead found a mess—signature pages with no contract attached; a contract with only one signature; or contract drafts without any signature at all. I’ve even had a couple of situations where both sides could not find a signed contract—posing a fascinating ontological problem as well as some intensely practical ones. As outside counsel, you may not always see the final signed contract (though I would usually ask for one, if for no other reason than to confirm that no further work was required on my part), but if you do, it should stored for easy retrieval. As inside counsel, it’s essential to maintain comprehensive files of all binding contracts.
Step 9: Do a post-mortem with your client to see what you learned from the deal. If you and your client are likely to do future similar deals, it may be worth investing some time after the first transaction to recap any lessons learned.
Step 10: Send a congratulatory note to other side/attorneys. Often, in the course of working on a deal, a lawyer develops a rapport with opposing counsel. The lawyer can reinforce the good feelings and extend his/her network by celebrating a successful closure to the deal. Good professional relationships can also help if and when the parties renegotiate the deal post-signing.
Step 11: Get the client to calendar significant dates and develop implementation plan. Often there are post-signing obligations to the contract, and the lawyer may need to help the client understand and implement those obligations to avoid breaching the contract.
Step 12: If deal has subsequent conditional dates, make sure those conditional activities get documented when they occur. For example, in web development and hosting agreements, usually some contract obligations are triggered upon “launch” of the website, such as hosting might run 12 months from the website launch. Unless the parties document the launch date, in the future it will be difficult to determine when the contract expires. Therefore, when reaching a milestone contemplated by the contract, the lawyer should (if involved at that point) record the event in the files (and, as applicable, the contract tracking software) to make sure the contract can be interpreted properly in the future.
Posted by Eric at August 27, 2007 06:11 PM | Legal Industry
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