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The Ugly Costs
of Misunderstandings

Written Sunday 02/18/07 by Joe Rossini

Have you ever wondered how our culture became so dependent on attorneys? If you bought a house or a business, recently, you probably signed enough documents to make your signing arm numb. Everyone who is a party to the transaction had to protect themselves in every imaginable way from any misunderstanding that could arise from the transaction. Disclosure after disclosure had to be produced by attorneys, to make sure that everyone insulates and protects themselves from future lawsuits. As we all know, laws “that are passed to protect the innocent” are written by legislators who unfortunately are made of who other than attorneys. The legal community lobbies to make our lives as complicated as possible, so that we can’t do much in life without attorneys. Everyone in our culture pays dearly, just to avoid any possible misunderstanding that can arise from just about any meaningful transaction.

When my partners and I sold our business several years ago, the buyer of our business voluntarily gave each of us a gift of two hardbound books of all of contracts and documents we signed over a four hour period at the settlement table. Collectively these two books contained over 550 pages of documents, with a table of contents to find each document easily. The buyers even had our names personally engraved on each of our books. The cost of these bounded books collectively was in excess of $5,000, just to avoid any remote possibility of any misunderstanding of the transaction. The collective legal fees for the entire transaction of sale exceeded $250,000, just to sell a relatively small private corporation. What ever happened to the handshake deals of yore?

Knowing these facts, can you just image what large public corporations spend in fees, in order to merge or buyout a business? In their case there’s attorneys; investment bankers; brokers; consultants; accounting firms; government regulators; and a multitude of expenses which can drive the costs of a transaction to fifty or even a hundred million dollars. That’s a staggering amount of hard earned money spent, that could be going to the shareholders in dividends. It makes you wonder how far these costs will rise to, 25 or 50 years from now, in order to conduct a business transaction. This clearly illustrates the ugly costs of misunderstandings.

Have you signed any online licensing agreement lately? If you are like 80% of the world’s computer owners and plan on using Microsoft, Adobe, or any other software, be prepared to sign a licensing agreement full of legal jargon that can be 20 pages or more long. Since few people will ever read or understand this mumbo jumbo, they just scroll down and click yes to whatever is in those agreements and officially become the licensee or better described as the “clickee.” However you can bet the farm that what you just clicked yes to, spells out in clear detail every imaginable protection possible, for the licensor with little or no protection for the clickee. Microsoft virtually insulates themselves in extraordinary detail, so that there will never be a misunderstanding by the “clickee” that can lead to a lawsuit against them. However the clickee can be sued in a minute, if you breach their rules of engagement.

This same strategy of signing your rights away occurs daily in the office of banks; brokerage houses; doctors; hospitals; lawyer’s; or just about anywhere you enter into ordinary transactions. In other words we have entered an era where everything we do must be clearly disclosed and explained in order to avoid misunderstandings.

Not to be pessimistic, but I can foresee a day in the not too distant future, where little will go on in our lives that won’t require a clearly spelled out written agreement between all parties interacting with each other. The business community is already engulfed with every agreement imaginable. On the personal side pre-nuptial agreements are already common place among more mature lovers planning on marrying. And divorces are a booming business for lawyers who deal with individuals who don’t listen to each other and separate because of misunderstandings.

Perhaps couples will have to sign multiple agreements all during their married years in the future to clearly spell out the rules of engagement in their relationship to avoid any possibility of any misunderstandings. Maybe we will even have to sign agreements with our kids as they are growing up, to avoid misunderstandings. These rules may include exactly what they can spend monthly when they are away at college or when they might be entitled to a car or any other gift or large purchase with exact spending limits. If this sounds far fetched – think again! Too many individuals and families are over their heads in debt because of misunderstandings that occur from a lack of clear cut, spelled out rules. Our whole world is littered with verbal misunderstandings that lead to ill feelings and severed relationships. Without written rules you can say one thing to someone and they will hear something else. Both parties will swear that they are both right. The facts are that the only way to engage in a civil and orderly relationship may be to put everything in writing and sign an agreement. Any breach of the agreement will have the consequences clearly stated in the document. That’s the ugly costs of misunderstandings – and I think we are not far from seeing this happen. And if it were up to the lawyers, they would love to see this trend start tomorrow!

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