Think you can get by in this business by relying on good friends and a handshake? Music pioneer Jim Stewart of Stax Records thought so. Rob Bowman offers a cautionary tale in his book, Soulsville U.S.A. The Story of Stax Records reminding us all to always read the fine print.

In May 1965, Stax and Atlantic Records finally formalized their distribution agreement, setting down in a legal contract what had existed for years as a handshake deal. Atlantic's owners had begun discussing the possibility of selling the company, and Jerry Wexler suggested to Jim Stewart that a written contract could protect Stewart. Stewart was worried that Atlantic could possibly be sold to a corporation that was not interested in or did not understand Stax's recordings or its market. He insisted on a clause in the thirteen-page document that would allow him to sever the distribution deal with Atlantic immediately should the company ever be sold and Jerry Wexler not remain a stockholder or employee, and within 180 days if the company should be sold and Wexler remain an employee but not a stockholder.

The contract gave Atlantic the exclusive right, but not obligation, to "distribute" any master Stax produced or otherwise acquired. Until Atlantic exercised that right on a given records, Stax could release "such master recordings in your local market, in order to test the salability thereof." Stax had to produce and offer a minimum of 6 master recordings (e.g. 3 singles) during a given year. In return, Stax was to be paid by Atlantic 15 - cents for single records and 10% of the retail list price of LPs, less taxes, duties, and costs of packaging, for 90% of all items sold and paid for in the United States. Stax was to receive 50% of these amounts for records sold through record clubs, and 50% of whatever Atlantic received for records sold outside the United States. Stax was obligated to pay mechanical royalties for all singles sold, while Atlantic assumed this obligation for LPs. Stax was also obligated to pay all moneys owed to recording artists.

While it wasn't overly generous, there was nothing particularly onerous or untoward about this agreement, with one very major exception. From the beginning of the contract it spoke of Atlantic's right to "purchase master recordings" from Stax. Paragraph 6C, page 7 was even more specific:

"You hereby sell, assign and transfer to us, our successors or assigns, absolutely and forever and without any limitations or restrictions whatever, not specifically set forth herein, the entire right, title and interest in and to each of such masters and to each of the performances embodied thereon."

Wexler had always maintained that Atlantic's lawyers slipped this clause in, and that he was entirely unaware of it. However, if Wexler had perused the contract, it would have been clear that this was a legal instrument that gave Atlantic full ownership of Stax productions. In other words, this was not a master lease or distribution contract as understood by Jim Stewart, it was a master purchase contract. 

Even more devastating, paragraph 12 on page 11 gave Atlantic the same rights to all Stax productions they had distributed prior to May 17, 1965. In one stroke of the pen, for one dollar, Jim Stewart and Estelle Axton lost the rights to the entire catalogue.

It’s easy to think that, if Jim Stewart signed it, that's his problem. But it's important to understand that Jim Stewart was every inch a product of the fraternal, personalized South: a person's handshake and word were more important than any contract. Stewart trusted Wexler implicitly; he didn't read the contract or consult a lawyer, or feel the need to do so. His friend, and to some degree mentor and trusted advisor, Wexler had assured him that the contract was a mere formality than would protect him, as he had desired, if Atlantic should ever be sold.

Excerpted from Soulsville USA The Story of Stax Records 
written by Rob Bowman.

This title can be found in the Music Pioneers section of 
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