A Little comment about Contracts

Contract imageIn every business transaction as long as man interacted socially, contracts have been involved in the facilitation of a deal. From the Mesopotamian Sumerian civilization to Roman times and even today, business men rely on contracts to establish order and logic behind a transaction. It adds a level of predictability and reliability. I even remember a short line in the Roman era movie, Gladiator, that there was a dispute about gladiator pay at the Coliseum, and the response was: you get the standard contract pay as any other gladiator performance. Some of the rules were determined by custom, others by law (Napoleonic Code). Within the U.S. fifty states, you will find some variance from the standard norm, like New York, to others that follow something known as the Uniform Commercial Code — well thought out rules that determine and define sales transactions.

I have observed that depending upon the geography, the contractual terms and conditions vary in length and detail. And I believe that the U.S. legal philosophy is to draft documents that have more details and options than any other region in the World, almost as if U.S. lawyers are being paid as Dickens was, by the word. And the reason the European contracts are far shorter and differ in length is because their standards are based on the Napoleonic code and all terms and conditions are automatically part of the contract.

The U.S. is adopting some of that practice through the national adoption of the Uniform Commercial Code. Latin America follows the European practice. Asia is a different matter but that region has more of a cultural legacy. Regardless, I always believe that there are fundamental components needed to avoid any misunderstanding from the very beginning. In other words, without these fundamental elements, you can’t get to first base.

PARTIES: For virtually all contracts, one needs to identify the parties. They must be over 18 years of age – any person, willing and able to enter into a contract. I always observed that you have to describe that party carefully and able to identify where to locate that party.   In other words, that party must be identified well for future reference.

CONSIDERATION: The other key element is the consideration – what is being exchanged for the contract – money, things or services. Without any consideration, there is no contract. There is no deal. The concept of tit-for-tat exchange is as old as civilization: corn for cloth, precious stones for food. In the U.S. one can develop complex models to delivers services in exchange for currency.

TERMS: Like any agreement, one has to figure out for how long? Duration impacts when payments are made, how one receives the compensation, and how one defines the act/service or the product. For example, in an investment agreement, I needed to define what were the milestones for the development of a data storage product, when each phase of the product would be completed, and the equity to be delivered on each specific date. Hence, each element of the transaction had to be defined for several quarters.

Now there many other items included in contracts – choice of law, dispute resolution, representations and warranties, and many other boiler plate phrases included in contracts. I have been involved in a situation where a breach of a contract in the Middle East only entitles a few camels and goats, no monetary compensation. In Latin America, some contracts must undergo a formalization with ribbons and notaries to be enforceable.  And I recall I had to wait in the office until early evening with a Malaysian party to sign simultaneously so that the Malaysian party be satisfied as to the validity of the contract. Sometimes I found myself embroiled in legal battle on the choice of venue. The devil has always been in the details.

Contracts not only cover the sale or the purchase of goods but also the Mergers and Acquisitions of companies or subsidiaries. Contracts have been used to purchase souls or indenture (In early U.S. history, someone who could not afford a transatlantic passage would become an indentured servant until the debt is paid).

However, even in this digital world, the concept of contracts must be established or there is no transaction. New technologies will not change the deal concept that has existed for many millennia. However, without including the 3 basic components, the contract does not exist; it has essentially nothing. So I always make sure that those 3 items are clearly defined.


About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP, jrzarco2001@yahoo.com, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy. http://www.docstoc.com/video/89135472/make-your-business-an-international-presence; http://www.youtube.com/watch?v=fx5gijf3yoc For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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