In business for some the law is the most important in any transaction or deal. For others, it is the details done by pesky lawyers. I have recently worked on a number of commercially relevant transactions. In particular, the worked focused on software licensing and support contract revisions and a series mergers of mergers and acquisitions. From this I amateurishly try to abstract what to me is the essence or key concepts or mental models of law.
The set-up: law is involved when something is bought or sold. Or rather, that is the type of law I refer to here.
The “something” - defining positively or negatively
There are two ways to define something - positively or negatively. A positive definition focus on what something is, a negative definition what something is not. Sounds trivial, but becomes relevant with uncertainty.
Let’s buy a house. The house has a garage, which we do not want to buy. In the transaction we might therefore say we buy the house. Or we might say we buy the plot with everything on it except the garage.
After buying the house, we make a discovery. The cellar contains two barrels of environmentally hazardous material, which we have to recycle at great cost. Is this our problem, or do the barrels maybe belong to the seller?
It depends on the definition initially chosen - if we choose to buy the plot with everything on it, probably it is hard to make a case that the barrel is somehow still the owners. After all, if we specified exactly what we don’t want to buy (the garage) and we did not put the barrels down on that list, so we must have planned to purchase them too.
On the other hand, we might find valuable silverware in the attic. Is this part of what we bought? If we bought a “house” than maybe not because silverware clearly is not part of a house. If we bought the whole plot, except the garage, then it probably is because the seller did not want the silverware to be included in the list of things we haven’t bought (like the garage).
In essence, the style of definitions matters - unless you know everything about something you buy, which you usually don’t.
Burden of proof
The “types of definition” is quite theoretically, the burden of proof isn’t. In the essence, even if law is mostly abstract at some point somebody has to actually do something. And that “doing” can be tiresome/expensive so it matters.
Now, assume we buy a company. The purchase contract states that the taxes were filed correctly in the years 2005 - 2018. Now, the tax authority demands payment for taxes in the years 2007 - 2015.
Proofing whether these taxes are caused by irregular tax filings or are part of the normal course of business is costly. It probably requires a taxation expert to dig into all the past filings at great detail and expense. Who carries the burden is decisive. Whoever is under the obligation might just decide to pay the additional tax and not do the inquiry.
Thresholds
Again, in the real world defining a thing in detail is often complex/impossible. A way around that is to delay the problem of definition by referring to a standard. For example, if we purchase a set of old wines, we might agree that they have been handled with “care that a wine lover would apply”. No, if a week later we find the wine to be undrinkable and suspect that this is the result of exposure to higher temperatures and sunlight, we’d complain that the standard of “care that a wine lover would apply” has not in fact happened. Now, two things happen, a) the burden of proof issue arises and b) specific knowledge is required because most likely courts have ruled on the question of what is part of the standard or care and what isn’t.
That’s it
In my understanding, this is what transactional law comes down to. Of course, in typical transactions this is masked by a lot of detail, complexity and procedural elements that are tricky.
For example, where we choose expensive silverware or barrels of hazardous waste, in the real world these items appear as pensions obligations or outstanding customer payments that might happen or not. That makes the work not easy, whilst it’s fundamentally simply