Contracts Seminar

COMPONENTS OF A CONTRACT DOCUMENT

Title

Keep title short

Title should accurately expresses the nature of contract

Examples of titles include "Employment Contract", "Real Estate Contract", "Promissory Note", "Lease Agreement", "Rental Agreement", "Partnership Agreement", and "Escrow Agreement".

Introductory Paragraph
- Identify parties and assign them shorthand definitions (e.g. "Jones", "Lessor", "contractor", etc.)
Recitals or "Whereas" clauses (optional)

PURPOSE: Provides background to the reader and to define some terms (IF there is no separate "Definitions" section). DO NOT include substantive provisions

ALTERNATE ONE - "RECITALS": label the section "Recitals" - each recital should be in a numbered (or lettered) paragraph

ALTERNATE TWO - "WHEREAS": the recitals are presented in a series of short paragraphs each beginning with the word "Whereas"

Definitions

Example of how to define a term: . . . by and between Charles Smith ("Seller") and . . .

Consistently use the capitalized shorthand defined term throughout the document

A separate definition section is not required but is useful in complicated contracts having numerous definitions

Substantive Provisions

detailed and unambiguous description of duties, services or goods to be provided
description of compensation & manner of payment
circumstances performance should be excused or late
phone numbers, mailing & email addresses of the parties
remedies for a breach
Include "boilerplate" clauses but only those actually needed

examples:

Force Mejure clause
choice of law
assignment and delegation
modification
severablility
attorney fees
dispute resolution mechanisms
effect on third parties
etc, etc

Closing

example:

IN WITNESS WHEREOF, the parties hereto agree to the above terms and have either executed it or caused it to be executed in their names by their duly authorized officers.

Signature Block (see below)

Attachments

attachments must be incorporated by reference in the body of the contract

Example: ". . . as is more fully described in Exhibit A which is attached hereto and made a part of this Agreement by this reference

The provisions in the attachments must be consistent with text in the contract

Example: don't call a party "Contractor" in the body of the contract then call her "Jones" in the attachment

Make clear in the body of the contract which of the attachments are binding and which are merely for reference only

Drafting Tips

Put most important provisions near the beginning

Organize logically - closely related provisions grouped together

Use clear short sentences

Break up long paragraphs by creating subsections

Give sections and subsections headings that communicate its topic.

Make headings easily distinguishable by using boldface or underlining

Do NOT capitalize a term unless it is a proper name or has been defined somewhere in the document.

Avoid page breaks that sever headings from underlying the text.

Put the signature block on a single page

Use readable font size (10pt is generally too small, 12pt is preferred)

the great "serif" vs "san serif" debate

Drafting Mistakes

Not Negotiating Everything

Not Including Explicit Payment Terms

Be clear - avoid ambiguity

EXAMPLE OF AMBIGUOUS WORDING

Be concise - avoid unnecessary words or phrases.

Be consistent

Once you've defined a party or term, be consistent in your use. For example, if you define one party as "Buyer" early in the contract, don't refer that that party later as "Jones".

Avoid inadvertently using words with legal significance

Example: be careful when referring to a relationship as a "partnership" or "partnering" unless you actually intend the legal meaning of those terms (lay people sometimes use those terms to refer to informal collboarations that don't amount to legal "partnerships").

Don't leave out key details.

Avoid vague descriptions to be determined later.

For example, if a party is required to provide "consulting services" you should specifically describe those services

Proof read, proof read, proof read (nothing makes you look like an idiot more than GLARING proof reading errors).

It is a mistake not to create the first draft

Always to volunteer to prepare the first draft of a contract. Doing that will give you the advantage in negotiations.

Be careful not to make assumptions

You should spell out all the relevant obligations in the contract and not assume that people will understand certain things. For example:

Don't assume that the other party will know where to deliver the goods. Spell it out explicitly.

Don't assume the other party will know that you will lose thousands of dollars if the goods are delivered late. Put a "time is of the essence" clause in the contract. - Hadley v Baxendale

Don't assume that the other party knows that you expect them to pay the shipping costs. Spell it out.

Be careful when using the following words:

"may" - means that the action is NOT mandatory
"shall" - means that the action IS mandatory
"will" - means an action is to be undertaken at a FUTURE date

Review Document

Does it hold up when viewed through the eyes of a hostile reader?

Draft the contract as if you are expecting every term to be fully litigated. Make sure there is no ambiguity

Signature Block

Corporate Signature

International Shoes, Inc.

by: ____________________________      Date: __________
      signature
      ____________________________
      print name and title

International Shoes, Inc.

by: ____________________________ Date: __________
Charles Jones, President

LLC Signature

Magic Highlights, LLC

by: ____________________________        Date: __________
      signature

      ____________________________
      print name and title

Magic Highlights, LLC

by: ____________________________ Date: __________
Charles Jones, Manager

Magic Highlights, LLC

by: Jonestown, Inc, its managing member

by: ____________________________ Date: __________
Charles Jones, President

Example of Poorly Drafted Contract

Distributorship Agreement

Common Contract Drafting Mistakes

Lack of clarity. Failing to clearly and precisely define the terms and obligations in the contract is a common mistake. Vague language or ambiguous terms can lead to disputes about what the parties actually agreed upon.

Oral contracts. Depending on the jurisdiction and the nature of the contract, oral agreements may not be legally enforceable for certain types of contracts (e.g., real estate or contracts that cannot be performed within a year). Failing to put important agreements in writing can be a significant mistake.

Failure to include essential terms. Leaving out critical terms or elements required for a valid contract can render the contract unenforceable. For example, failing to specify the price or payment terms in a contract for goods or services.

Lack of consideration. Forgetting to include an exchange of something of value (consideration) is a common mistake. Without consideration, a contract may not be binding.

Illegal or unenforceable terms. Including terms in a contract that are illegal or against public policy can render the entire contract unenforceable. It's important to ensure that the purpose and terms of the contract comply with the law.

Impossibility of performance. Failing to consider whether the contract's performance is possible or practical can lead to disputes. Contracts that are impossible to perform may be void.

Failure to identify parties properly. Not accurately identifying the parties involved or failing to include authorized representatives can lead to disputes regarding the parties' obligations and responsibilities.

Inadequate details for performance. Contracts that lack specific details on how and when obligations will be performed can lead to misunderstandings and disagreements about expectations.

Lack of review. Failing to review contracts thoroughly before signing can be a costly mistake. Parties may inadvertently agree to terms they did not intend or overlook unfavorable provisions.

Failure to seek legal counsel In complex contracts or high-stakes agreements, not seeking legal advice can be a major mistake. Legal professionals can help identify potential issues and ensure the contract is legally sound.

Misunderstanding terms. Parties may enter into contracts without fully understanding the legal consequences or obligations they are undertaking. It's important to seek clarification on any terms or language that are unclear.

Pressure or duress. Entering into a contract under pressure, duress, or undue influence can render the contract voidable. It's important to ensure that both parties enter into the contract willingly and without coercion.

Failure to keep records. Failing to maintain records of communications, changes, and amendments related to the contract can lead to disputes and difficulties in enforcing the contract.