Commercial imperative

The Jolly Contrarian’s Glossary The snippy guide to financial services lingo.™ →Go uptown Index — Click the ᐅ to expand: Glossary Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

The cold, hard facts of commercial reality which pervade everything about your relationship with your client, and which your client’s lawyer is certain to not understand. If she does understand it, she will profess not to care about it, claiming it is beside the point. It is not beside the point. It very much is the point.

The benefit of a contract. Why merchants do what they do.

For each party enters into a contract with a commercial aspiration; that all going well, that contract will yield some kind of benefit. That is it; that is the sine qua non of entering into any commercial contract: you hope that, over time, it will help you will make money. Lots of money. If it does not, it is a dud contract. You should dispense with it.

Assuming you have not, we can assume your contract indeed yields great benefit to you. Let us call the value of that benefit “X”. There are three types of X:

• Historical X: “Historical X” is the benefit you have already extracted from this contract. It will give you a comfy feeling, it brings to remind the chalet in France that you bought with it, and it may help project your expected benefit for the future, but for all other purposes Historical X is meaningless. It is in the past.
• Current X: “Current X” is the value of booked and expected benefits from transactions that already exist or will arise during the non-fault notice period of the contract . Think about this as “unbilled work in progress”. This is a benefit you can safely say you will earn, but have not yet. It is exciting — almost tangible — but, compared with Historical X and Future X, it will amount to bugger-all.
• Future X: “Future X” is the benefit you can expect throughout the remainder of your relationship, assuming you both remain solvent and on good terms. Future X is much less certain, but it is potentially huge. This is the golden prize. This is what you should be focused on in every moment when you perform the contract.

You are short an option on Future X

Now. Look at the prospects for each type of X. Historical X is in the bank. Current X is as good as being in the bank. But you are short an option on Future X.

Why are you short an option? Because you are not entitled to Future X. You have to persuade your client to give it to you. You cannot stop it terminating your contract if it so wishes. It could give all that lovely, juicy Future X to someone else. You should apply every fibre of your being to giving your client no earthly reason to take its business elsewhere. In a very real sense, your future prospects depend on the continued performance of your valuable contracts.

Legal risk

At the start of your relationship, the value of the three types of X will be unknown. It is at this point that you, your counterparty, and your respective battalions of lawyers will engage in that unedifying ritual known as contract negotiation. Counsel will agonise four weeks on the potential import of the legal terms. “Does under really mean the same thing as pursuant to and in accordance with?” This kind of thing. Most of the arguments will concern circumstances which are almost certain never to occur and, if they do, Will necessarily be utterly destructive of Future X in any case. The insolvency of the parties, for example. It is all very tedious, but those of a certain disposition seem to enjoy it. We write about them a lot on this site.

In any case arguing about these semantics will delay the start of the Historical X period.