United States: How Parties' Intentions Affect Contract Processes In Paper, Electronic And Smart Contracts

How important is the process of negotiating contracts? And when a dispute arises, how important is the process of resolving what those negotiated contracts mean(t)? For those who affirm, to any degree, the presumption that these processes are important, how would the rule of law look without them? The purpose of this piece is to place in context negotiation processes by highlighting the significance of parties' intentions to contracts.

Negotiation and resolution processes focus on what parties agree(d) upon but from different directions in time (and correspond with differing perspectives; hence, in this piece I privilege intentions and not the standard contract emphasis on intent; losing either's role would have monumental consequences, but the priority of intentions and its direction, is the focus here). Note presumptions of these processes: the act of negotiating is often necessary in order to establish your best terms in a contract (negotiating meaning to work through a difficult, often adverse, discussion); and determining if an agreement is legally enforceable depends, among other things, upon whether there was mutual intent by the parties. (If you remember one thing after trudging through this piece, it should be that contracts, to be contracts, must hold intention that can be legally bound... that's it; you can quit reading and check your latest feeds.)

But how often do parties, even sophisticated parties represented by counsel, intend all the terms of a contract? The answer partially depends upon whether intention and agreement are equivalents. If they are, the answer is most of the time, but if they are not, the task becomes one chiefly of interpretation—a topic for another day.

How important really is a party's intention? Consider one sticky metaphor and three consequential safeguards in the rules of contract construction. The modern contract requires a "meeting of the minds" to form a binding agreement. Judicial opinions view such unity as a necessary part of contract formation when interpreting a contract. But how often has such harmony occurred in your experience for the terms you wanted and those you didn't? More problematic tends to be the unclear, or ambiguous, terms governing consequences you may have expected and those you didn't.

Whether a "meeting of the minds" is a helpful fiction or actual consensus, the metaphor covers the requirement of delineating the parties' intentions. Principles of contract construction go so far as to protect those intentions. Consider these three safeguards in contraction formation: first, the terms are construed against the drafter. Nothing more accurately reflects the "intentions gap" and potentially unequal leverage between parties. Second, disclaimers must be conspicuous, a gentle eyesore that is all bolded or capitalized marking the release of a right. Third, the opportunity to have reviewed an agreement is acknowledged by check boxes and signature lines. All are designed to ensure what was intended by the parties.

My cursory attempt to reduce contract law to being all about parties' intentions (long before advocates argue and judges determine intent) is to encourage bolstering yours and understanding its importance in contracts.

Exercising intentions comes down to preparation and close review. Integrate sales and contract departments with procurement professionals and consistently train all three. Simply put, developing skills that get the best representation of your intentions in an agreement can yield long-term benefits. At a minimum, get organized by filing and tracking the terms of contracts and communicate information internally to present a unified front; and read, read and read again, more closely each time. While topics tend to overlap, their presentation varies, at times subtly. Be wary that if there is a chance to shift exposure, a party will look to do just that. Yes, your review will require industry specific knowledge to comprehend the jargon and, if not more importantly, the ability to translate terms of art into plain speech.

To paraphrase the takeaway, maximize intention through effort (e.g., spend the time to develop better negotiators). That's it. There's no substitute for work, now and in the future.

How would agreements look without intentions? Contracts today risk not being contracts without them. Will agreements in the future risk the same? What if the very processes of forming and interpreting contracts no longer reflect intentions? Future "Smart Contracts" may hold these risks.

Without mutual intention of the parties, smart agreements are no more a contract than they are smart. No more than machines learn, let alone deeply. It's an aside, but a pertinent one: compare how IBM's Watson learned through sorting schemes to diagnose patients to how Alex Honnold learned through touch to scale El Capitan. The marketing value of anthropomorphizing technology (after centuries of doing it to nature) seems clear—connect to human consumers' emotions—but may have significant consequences if learning takes an undesirable paradigm shift or, while less significant but still consequential, misleads us to believe "meeting of the minds" is implied in "smart" agreements.

Yet Smart Contracts, programmed or computable agreements and authenticated contracts with unique IDs, like other technology, hold awesome potential. They can change the rule of law for the better (how

I do love them, let me count the ways...if there was only the space). However, if coding expectations of performance and templates without negotiation become enforceable agreements, then there will be solely leveraged deals generated (or drafted) by the party with more power. Additionally, if courts grant Smart Contracts the same status as contracts, those same courts have increased their responsibility to enforce the safeguards for intentions. Repercussions of this enforcement may result in programmed agreements and authenticated templates not having the force of law, or courts having to concede to something less than the rule of law applying to them—a foreboding development for the competition driven market economy.

As contracting becomes more digital and streamlined into blockchains (could we have stomached the "thoughtful" ledger?) for future deals, negotiating those program agreements and templates will require far more effort and more expertise, not less, to realize the promised increase in contract transparency and efficiency. Whatever the improvements, they will be proportionate to having included your intentions.

Originally published by Transportation Industry News.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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