Transactional Nits

Have you ever wondered whether the nuances of transactional language matter? Consider Judge Dennis Montali’s seven-page analysis of a liquidation plan and disclosure statement in the Heller Ehrman bankruptcy.

Many of his criticisms are substantive, but he also flags some common attention-to-detail problems in transactional documents. Here are five:

1. Capitalizing common nouns that are never defined

The judge speaks: “Settlement Agreement” is not a defined term. “Self Insured Retention Amount” is not a defined term. “Dissolution Plan” is not a defined term.

Action plan: Review your agreements for capitalized words that are not proper names yet are not defined.

2. Inconsistencies between defined terms

The judge speaks: The definition in (ii) conflicts with the Disallowed Claim definition in 1.50.

Action plan: Cross-reference all definitions embedded in other definitions (or better yet, don’t use a definition to define a separate term).

3. Inconsistent treatment of operative provisions

The judge speaks: Is the use of different but similar terms (“five per cent (5%) per annum” and “five percent simple interest”) intentional or inadvertent?

Action plan: Create a simple style sheet for key parties, currencies, and formulas.

4. Faulty cross-referenced paragraph numbers

The judge speaks: “5.15” should be “5.23”; “5.27” should be “5.28.”

Action plan: Few mistakes are more common than this one. Toward the end of your review, make sure all cross-referenced paragraph numbers are still accurate.

5. Inconsistent formatting

The judge speaks: “6” should be “VI.”

Action plan: If you haven’t installed software to catch such glitches, check your section and subsection headings, and also review for consistent treatment of margins.

One last tip: Use my ten-point checklist for reviewing transactional documents:

Transactional Checklist

Order Point Made

Order Point Taken

Order Deal Struck