The Art of the Deal
16 considerations to keep in mind when drafting a contract
By Jeffrey A. HelewitzOne of the primary responsibilities given to the modern legal
assistant is the initial drafting of legal documents. Because contract law forms the basis
of most legal relationships, it’s likely that at some point, you’ll be called upon to
create a contract for a client.
There are three key elements that you should keep in mind
before attempting to draft a contract:
- Begin with a thorough understanding of the precise wishes
of the client
- Use a checklist of clauses or topics that should be
covered by the agreement
- Draft the contract by referring to any existing contracts
that may cover the same or similar subject matter
Before drafting the agreement, be sure that you have a
clear understanding of the precise nature of the relationship the parties intend and make
certain that you are familiar with the special terminology associated with the specific
industry. Every industry has its own particular phrasing and specific types of legal
obligations. To understand and determine the special provisions that may apply to a given
area of law, refer to texts and treatises on the particular subject. Furthermore, always
ask the attorney and the client whether they have existing contracts they want you to use
as the basis for the one you are going to draft.
The following checklist provides a sampling of clauses
that typically appear, and should therefore be considered, when drafting a contract.
However, remember that every contract is unique to the client and the circumstances
involved, and as such, no one format will fit the needs of every situation you may
encounter. Use the following checklist as a starting point, rather than a destination, as
you embark on your contract drafting assignment.
1. Description of the Parties
This is generally the first clause of every contract. The term
"description" refers to the legal name and alias of each party, the type of
entity of each party and the manner of referral for each of the parties throughout the
remainder of the agreement.
Sample Clause: This agreement made this [Date] day of
[Month], 2000, between [Party Name], a Delaware corporation (hereinafter referred to as
"Corporation") and [Party Name], an individual resident in the state of [state]
(hereinafter referred to as "Individual").
2. Description of the Consideration
Mutuality of consideration is the cornerstone of contract law; it’s the
bargain to which the parties have agreed. The consideration being given by each side must
be specifically described, including such terms as price, quantity, quality and time of
performance. Also, any conditions the parties wish to impose on their performances must be
specifically and clearly stated.
When drafting the consideration clauses, you should
remember to include the following elements:
- A complete description of the consideration specifically
tailored to the subject matter of the contract:
- For realty, use the legal description as it appears on the
deed.
- For money, specify the exact dollar amount.
- For services, indicate the nature of the services to be
performed.
- For personalty, describe the items in detail.
- State the mutuality of the consideration being given by
each party.
- Specify the terms of the performance (payment,
contingency, installment sale, etc.).
- Detail any condition that may apply to the performance,
such as late payment penalties, time-is-of- the-essence clauses, etc.
- Use simple language.
If the contract you are drafting is covered by the
Uniform Commercial Code (UCC), determine whether a filing is necessary, or whether a
specific form for the agreement exists or is required to be utilized.
Sample Clause: In consideration of Two
Thousand Dollars ($2,000) this day paid, Seller agrees to sell to Buyer the following: One
[model] computer.
3. Terminology
All contractual terms are construed according to their ordinary meanings unless the
contract itself specifies otherwise. Therefore, all important terms in the agreement
should be specifically defined in a terminology section. This is especially true for terms
that are specific to a given industry. A well-drafted contract always includes a
terminology section. This section usually appears at the beginning of the contract.
4. Title
Title indicates the ownership rights of interest, possession, transfer and the
right to insure the property. Therefore, it’s important to state in a contract the
moment at which the title to the subject property transfers from the seller to the buyer.
Whoever has the title to the property bears the risk of loss if the property is damaged or
destroyed and may have the property attached by his or her creditors.
Sample Clause: When the full sum mentioned
above is fully paid, title to said property will vest in the Buyer, but until that time,
title will remain in the Seller.
5. Duties and Termination
Every contract should specify the duties of the parties and indicate the grounds
for which the parties may terminate the contract before the performance is completed
without being in breach. The grounds for termination may be for specific causes or without
cause, if the parties so agree.
In either an employment contract or a contract for
personal services, each of the duties to be performed should be specified, including
limits on the extent of any authority the employee may have with respect to obligating the
employer to third persons. Also, the specifics of compensation and other benefits to which
the employee will be eligible should be detailed, including the method of accounting to be
employed if compensation is based on a percentage of income or revenue.
6. Security Agreement
If the parties have agreed that a security agreement will attach to the contract
pursuant to Article IX of the UCC, make sure that the contract includes a clause that
establishes the security agreement of the parties. Also, most contracts that provide for a
security agreement as governed by Article IX of the UCC require some form of filing to
perfect the security interest. Be sure to check with your state statute to determine
whether such filing must be made and what the nature of the form is that is required by
your state’s version of the UCC.
Sample Clause: [Corporation] hereby grants
to [Individual] a security interest in all receivables, as defined above, all present and
future instruments, documents, chattel paper and general intangibles (as defined by the
UCC).
7. Warranties
If the contract is one for the sale of goods, under Article II of the UCC, certain
warranties will attach. If the parties demand or anticipate specific guarantees with
respect to the nature of the subject goods, include provisions covering these express
warranties.
Sample Clause: Seller hereby warrants that
the premises is habitable as is (Express Warranty of Habitability).
8. Risk of Loss
If the parties anticipate that there will be a delay in having the subject goods
transferred from the seller to the buyer, either because of a conditional sales agreement
or the transportation of the items, the contract should specify when the risk of loss of
the goods transfers from the seller to the buyer. If the goods are lost or destroyed, the
one who bears the risk bears the loss. Risk of loss terminology and considerations appear
in Article II of the UCC. You should refer to that section of the UCC as adopted by your
state to determine the appropriate clauses to insert when dealing with goods being
transferred by means of an independent transfer agent.
Sample Clause: Risk of loss shall remain
with the Seller until the good is transferred to the shipping agent, FOB.
9. Special Provisions
There are several boilerplate clauses that are included in many contracts. Such
clauses include:
Covenants not to Compete
- Use of masculine or feminine pronouns in the agreement.
- Severability of the specific contract provisions.
- Rights and obligations of successors in interest.
- Confidentiality of trade secrets, client lists and work
products.
You can find the standard phrasing used to cover these
provisions in most form books and former contracts used by the parties. They should be
included where appropriate.
10. Waivers
A waiver acts to relieve a contracting party from his or her contractual
obligations. Most contracts should include a clause covering the effect of a waiver of one
or more provisions on the remaining contractual obligations or rights of the parties.
Sample Clause: No delay or failure on the
part of [party] to fulfill any of these provisions will operate as a waiver of such
provision or any other right, and no waiver will be valid unless in writing, signed by the
parties, and only to the extent specified in that writing.
11. Assignment and Delegation
Although most contracts are assignable, the parties may want to agree to the
specific methods of effectuating the assignment or decide that the particular contract in
question is non-assignable. The contract should therefore include a statement with respect
to the assignability of the contract rights, either specifying that the contract is
non-assignable or, if it is assignable, any conditions that attach to effectuate the
assignment of the contract.
The obligations of the parties to a contract may usually
be delegated unless the contract involves personal services or confidence. If the parties
contemplate a delegation of responsibilities, a clause should be inserted in the contract
to cover the manner and extent of such delegation.
Sample Clause: This contract may not be
assigned or delegated by the parties.
12. Remedies
A contract should contain some provisions with respect to the remedies available to
the innocent party in case of a breach of the contract’s provisions. The parties may
specify liquidated damages or a limitation of damages and can agree in advance as to the
responsibility of bearing any legal costs incurred in enforcing the contractual
provisions.
Also, if the contract is covered by Article II of the
UCC, specific remedies are afforded to the buyers and sellers of sales contracts. These
remedies should be included in the provisions of the contract.
You should also be sure to check your state’s
version of the UCC to determine the remedies and phrasing appropriate to your
jurisdiction.
Sample Clause: Damages for breach of any
provision in this agreement shall be limited to the amount of [dollar amount].
13. Arbitration
In order to avoid the time and expense of judicial litigation for solving problems arising
out of a contract dispute, the parties may insert an arbitration provision by which they
agree to submit the dispute to arbitration. The parties may also specify how and where the
arbitration shall be conducted as well as who shall pay costs and attorneys’ fees
arising out of any dispute.
Sample Clause: All disputes, differences
and controversies arising under or in connection with this agreement shall be settled by
binding arbitration according to the rules of the American Arbitration Association (AAA)
in force at the time of such dispute, difference or controversy. In the event that such
binding arbitration becomes necessary, both parties agree to hold the arbitration in
[city, state]. The parties may agree on a retired judge from the AAA panel. If they are
unable to agree, AAA will provide a list of three available judges, and each party may
strike one. The remaining judge shall serve as the arbitrator. Each party agrees to bear
its own attorneys’ fees and costs incurred in connection with any dispute arising
under the contract, unless as otherwise specifically provided.
14. Choice of Law
Contracts will generally specify the state law that will govern its provisions and
application.
Sample Clause: This contract will be
governed by the laws of the state of [state].
15. Submission to Jurisdiction
To avoid possible problems with respect to the court acquiring appropriate
jurisdiction over the parties to the agreement, many contracts should include a clause in
which the parties agree in advance to submit to the jurisdiction of a particular court.
Sample Clause: The parties hereby agree to
submit to the jurisdiction of the courts of the state of [state] to settle any disputes
arising out of or under this contract.
16. Signatures
The final part of every contract is the signatures of the parties. Space should be
provided for the parties to sign their names above their typewritten names, and if the
parties are signing in a representative capacity, the formal name of the organization
should appear along with the signatory’s title and authority to sign the agreement.
If there are numerous parties to the contract, you may
also want to include certain language that would allow the parties to sign the contract in
counterpart, meaning that all parties’ original signatures don’t need to be on
the same page. In other words, each party to the contract may sign a separate page and
then the multiple pages, each with its own original signature, may be collated together at
the end of the contract and comprise the "signature page." If a party to the
contract is a corporation, the corporate seal may be affixed as well. (Note: contracts are
not notarized.)
Although the preceding checklist of contractual clauses
represents some of the more frequently encountered provisions found in the majority of
contracts, it’s also important to remember that each contract is individual to the
specific client and the specific industry, and there are many additional provisions that
apply under any given set of circumstances. It is advisable to always check your state
statutes for any particular clauses that your state may require for certain types of
contracts.
JEFFREY A. HELEWITZ currently teaches at several
paralegal institutions in the New York City area and is an adjunct professor of law at
C.U.N.Y. School of Law and Touro College Law Center. Helewitz has also authored numerous
legal texts designed for legal assistants. |
