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September 27, 2003

Surreptitious Contract Changes

It's the end of the fiscal quarter, and so a lot of contracts are being negotiated. These days, most contract negotiations are done electronically. I email you a Word document. You email me a "redline" with revision marks and maybe some comments. We talk by phone. Repeat as necessary. In the end, however, we're probably going to want a handwritten signature on a hard copy of the final contract.

Suppose I send you a signed original contract and ask you to countersign and return it. Do you do a word-for-word comparison, to make sure the hard copy matches the agreed electronic document? If you do, you're spending time that surely could be put to better use. But if you don't, how do you know I didn't surreptitiously change something before printing the document for signature?

The overwhelming majority of lawyers would never try to pull something so underhanded. It's stupid -- if you were to get caught, your reputation could be severely damaged. Other lawyers might start refusing to deal with you. Your negotiation partner (turned enemy) could well report you to the state bar.

But I know two lawyers who, years ago, unwittingly let their clients sign "bogus" documents that way. Needless to say, their clients weren't pleased.

A few years ago, as I started doing more and more contract negotiations electronically, I drafted a clause to address the surreptitious-changes issue. In recent days I've had several lawyers tell me that they loved the clause and intended to steal it. Here's the latest version:

No Unannounced Modifications to Signature Documents. The parties have reviewed (and, if applicable, negotiated) this Agreement in its electronic form. They desire to be able to sign the hard-copy version without having to re-read it to confirm that no unauthorized changes were made before the final printout. Toward that end, by signing and delivering this Agreement and/or any schedule, exhibit, amendment, or addendum thereto, now or in the future, each party will be deemed to represent to the other that the signing party has not made any material change to such document from the draft(s) originally provided to the other party by the signing party, or vice versa, unless the signing party has expressly called such changes to the other party’s attention in writing (e.g., by “red-lining” the document or by a comment memo or email).

At least with this clause, each side has an indisputably reasonable basis for assuming that the other side isn't playing dirty. They therefore shouldn't have to worry about re-reading the hard-copy document before signing it. (It might still make sense to re-read the hard copy anyway, just to make sure it says what you really want it to say.)

If you've got any suggestions for improving this clause -- or war stories about situations where the clause would have come in handy -- please post them in a comment.

September 27, 2003 in Contracts | Permalink

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Tracked on Sep 29, 2003 4:02:20 PM

Comments

The issue of Surreptitious Contract changes has been around for years. I have been concerned that the 'drafting' attorney may incorporate changes other than those that have been mutually agreed. In the pre-Email age, I handled the matter with a representation by the attorney that the final document conforms to the original excepting only highlighted changes as noted in subsequent drafts.

With the above clause I see two potential issues. First, what is the remedy for the representation being untrue. You do not want to cause a default, rather the clause could provide that any 'added' language is void. Second, if all drafts are electronic, proof as to the agreed changes and prior drafts could be problematic. From a negotiating structure perspective, this issue would require documentation of the explicit changes agreed by the parties.

I am a bit troubled by the client making the representation when it is the attorney who would have tried to slip in the added provisions.

Posted by: Fredric Leffler at Oct 28, 2003 10:51:16 AM

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