Corporate & Securities Law

For Optimal Contract Language, Don?t Follow the Herd

By Ken Adams

In this post on his Contract Analysis and Contract Standards blog, Kingsley Martin notes that empirical analysis of contracts allows you to determine what they actually say as opposed to what you think they say.

That makes sense, but it wasn’t what caught my eye. Instead, I noted this table, which is from Stewart J. Schwab & Randall S. Thomas, An Empirical Analysis of CEO Contracts: What Do Top Executives Bargain For? The table is entitled “Actions Defined as Just Cause for CEO Termination,” and it shows that in the contracts examined, the most commonplace basis for just-cause termination was “moral turpitude”?it appeared in 72% of the contracts.

But the phrase moral turpitude is unhelpfully vague, and it has given rise to a least one head-scratching court opinion. See this December 2007 blog post and MSCD 12.176?194 (the more recent version of my analysis). I’d never use moral turpitude in a contract; I recommend that instead you use clearer alternatives.

I point this out just to suggest that if you hold a popularity contest to determine what goes in your contracts?if, in other words, you’re looking for conformity?you’re likely going to include in your contracts a lot of language that may be prevalent in mainstream drafting but is nevertheless dysfunctional.

The prevalence of a given provision could be an indication of how much resistance you’re likely to meet in seeking to include it or exclude it from a given contract. But use it at your peril as an indication of how suitable the provision is.

Full post as published by AdamsDrafting on September 30, 2010 (boomark / email).