Take a Law Class

by Colin Berkshire

Every job anymore requires a basic understanding or rules and law. I recommend that everybody take at least one semester of introductory law. Whether you are a dentist, a telephone lineman, a sales person, or a clerk, you should understand some law.

You will get some basic understanding of basic legal concepts such as the Parole Evidence rule which basically states you can lie your pants off in negotiating a deal and in representing it if the final written deal states that it is the full and complete agreement. You will learn how anybody can file a UCC-1 for $5 and make your company a living hell because that person feels entitled to something from your company. You will learn that a simple email that you send on some topic is effectively a written amendment to a contract which states that it can only be amended in writing.

Yes, you need to understand law.

Here is one of the crazier new twists that has grown from a 2004 case with 3M company…

Contracts have since forever had “unless unreasonably withheld” clauses. A common example is that you can assign your lease to a new owner of your business, subject to the approval of your landlord. The contract almost certainly provides reassurances that “such permission shall not be unreasonably withheld.”

Until 2004 the meaning of this was well understood: The landlord could not block the assignment (transfer) of the lease to the new owner unless there was some deep overriding reason why this should not be allowed, such as the new owner being a street bum who could never pay the rent. Until 2004, a provision stating “shall not be unreasonably withheld” was accepted to mean that the reason had to be so significant that it would undermine the rest of the contract.

Then, in 2004, everything quietly changed. The courts re-interpretted this provision to mean that the landlord only needed some reason…any reason to withhold permission. Suddenly, “shall not be unreasonably withheld” went from being a very high standard to being basically arbitrary.

We had this some up recently. We wanted to acquire a small company. They had a lease, and we wanted the company to stay in place. We wanted to take over the lease. When we went to get a rubber-stamp approval of the transfer of the lease to us the landlord stated that they were withholding permission to assign the lease “because they felt the market price of rent should be paid.” The landlord wanted a rate increase. In further discussions, the landlord wanted a “signing bonus” of 25% of the entire acquisition price of the company plus the rent to be doubled. As the company had a lot of heavy machinery it was impractical for us to relocate them.

The results was that the deal fell through. The meaning of the contract had changed, even though none of the language or intent had changed.

The poor company we wanted to acquire went from being worth millions to being unmarketable. Incidentally, they failed as a business two years later because they really needed a larger partner.

So I will close with the point I opened with: Everybody needs a basic law course. Words no longer mean what you think they do. Words definitely don’t mean their plain and simple meaning.