Bad experiences often lead to bad legal language.  Every strange warning label you’ve ever seen on a product is the result of a lawsuit.  Even “warnings” that sound like common sense, such as “do not iron while wearing shirt” are the result of folks seeking common “cents.”  (By the way, if you’re interested in more of these you might find the Wacky Warning Label site run by the Michigan Lawsuit Abuse Watch of interest).

Contract often evolves the same way.  A recent article in the NY Times discusses how builders dealing with prima donna homeowners add contract clauses to avoid repeating prior bad experiences. 

Take for example the contractor who leaned a material delivery up against a fence.  The added pressure made the gate to pop open and the family dog wandered off causing the homeowner to launch into an abusive tirade.  The dog came back in the middle of the argument, but, to avoid becoming a verbal punching bag the next time there is now a clause that says workers “shall not be expected to keep gates and the like closed for animals and children.”

Another contractor got burned when a client withheld $10,000 due to a missing kitchen cabinet door knob.  Now their contracts reads “final payment is due upon substantial completion.”

On the flip side, as a homeowner, if you’ve ever had to call a contractor umpteen to get them to finish a project, the “substantial completion” language may be a problem.  It therefore pays to read contracts and to seek clarification about mutual expectations — even the ones that seem obvious to you. 

It’s cheaper than a lawsuit and will save a lot of frustration.  

After a brief sabbatical, Legalliteracy is back; and what better day to return than today — May 1st — Law Day.  While some people hiss and boo at lawyers and lawsuits and otherwise poke fun at a profession they think takes itself too seriously, let’s not forget that a mature legal system and rule of law does have some real business advantages.  Advantages that should be celebrated.

An enforceable system of contracts and reliable property rights provides the stability necessary to support solid economic growth and prosperity.  The process of accountability creates trust and confidence.  It is precisely that trust and confidence that lets a business deal be a calculated risk instead of a gamble.

Indeed, the consequences of a developing rule of law and the business risk it creates was driven home last week by Home Depot’s top legal beagle, Jack A. VanWoerkom, who shared his views about the risk of doing business in fast growing foreign markets.  His views were informed by his international experiences at Home Depot as well as the chief legal positions he has previously held at three other global companies.

Here are a few of his candid observations: 

Sao Paolo is a very dangerous place to do business, if you are in Brazil, you operate with a body guard.  [One of my former employer’s competitors in Brazil] paid bribes, the other [competitor] didn’t pay taxes.  It was widely accepted and considered a competitive advantage

[Indian] courts are overwhelmed.  I have great concerns about the enforceability of contracts.  [Extreme poverty and separation of people into social and economic groups causes] people to either manipulate or buy justice.

China has only had property ownership for about 15 years, [its economy and business infrastructure is] very immature.

I did not buy a business in Russia because the level of corruption was so great it just didn’t seem worth it.

Doing business in the world’s fastest growing markets sounds very good; but when things go bad they can go bad very quickly simply because there is no effective recourse when contracts are breached.  Unfortunately, there is no foolproof way to contract around the law of the jungle.