In the newsletter
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Credit risk: Between having a legally enforceable claim, and getting paid . . . falls the shadow
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Getting up the learning curve: Five thoughts on training first-year transactional lawyers
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The tale of a four-legged dog
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About
Charles Fox
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Charles
Fox is one of the country's foremost experts in training for transactional
lawyers. Prior to founding Fox Professional Development LLC, he was a
partner at Skadden, Arps in New York for 14 years, specializing in debt financings and
restructurings. An active trainer at dozens of law firms and well-known
companies, he is the author of Working with Contracts - What Law
School Doesn't Teach You, the leading book on practical contract drafting
skills for junior lawyers. Read more at www.foxprof.com.
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In upcoming issues
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The six basic differences between bank loans and debt securities
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Avoiding ambiguity in contract drafting
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The rhyme and reason of antidilution provisions
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Unlocking the potential of litigation/transactional crossover training
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CREDIT RISK: BETWEEN HAVING A LEGALLY ENFORCEABLE CLAIM, AND GETTING PAID, FALLS . . . THE SHADOW
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When we negotiate and draft a contract that is clear and precise and that accurately reflects the intent of the parties, we are helping our clients achieve the "benefit of the bargain." But whenever an agreement that we draft imposes on another party an obligation to pay our  client, the issue of "credit risk" arises. This is the risk that an obligor will be financially unable to satisfy its payment obligation when due. Merely creating an airtight contractual claim does not reduce this risk. Let's look at a simple hypothetical. You are a cardboard manufacturer who is owed $200,000 by a customer. This receivable is now two months overdue, and you are tired of getting the runaround. Your lawyer reviews the paperwork and assures you that the customer has no legal basis for not paying. In other words (legal words, to be exact), you have a legally enforceable claim against the customer for $200,000. What do you do now to collect this amount? Here's a likely progression of steps: - Ask nicely one more time.
- Ask less nicely.
- Sell the claim to a collection agency, at which time collection becomes the collection agency's problem. However, the price that the collection agency pays you
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Getting up the Learning Curve: Five Thoughts on Training First-Year Transactional Lawyers
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This article was originally published in the July 22, 2010 NALP Bulletin
We are increasingly hearing criticism from law firms and clients that law schools do a poor job of producing graduates with meaningful practical skills. This problem is worse for students entering transactional practice: the case study learning method shortchanges deal lawyers more than it does litigators.
Even the law school courses that are considered essential for the student who is interested in transactions, such as corporations, secured transactions, and corporate finance, are taught through the analysis of cases about deals that have gone bad. As a result, law students complete these classes without understanding how and why transactions get done in the first place. On the other hand, lawyers starting out as litigators have a distinct advantage: by reading cases for three years, they have absorbed the basic dynamics and vocabulary of litigation practice.
To make matters worse, a new transactional lawyer surveying the law firm training landscape might conclude that this litigation bias goes beyond law school. How many firms that provide well-developed and extensive training programs for
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| THE TALE OF A FOUR-LEGGED DOG | | |
The following riddle has been attributed to Abraham Lincoln: If you call a dog's tail a leg, how many legs does the dog have?
Answer: Four legs. Calling a tail a leg doesn't make it a leg.
What's the relevance of this to transactional lawyers? We occasionally come across transactions that are called one thing, but are really another. We need to be ready to look past nomenclature and window dressing and see the realities of every situation we face.
Example: Your client has delivered equipment to a counterparty, who has promised to pay the purchase price for the equipment over time. The purchase agreement specifies
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