When it comes to writing contracts, clarity and conciseness rule the day. A poorly drafted contract can not only confuse among the parties as to what is expected from whom, but it can also become a litigation quagmire if a later disagreement over the terms results in a lawsuit.
If you don’t believe me, I can tell you that I once spent five years of my life litigating a dispute over whether the terms “dehydrated vegetables” and “dehydrated vegetable products” — both used in various places in one contract — had the same meaning. I can assure you that seemingly minor drafting oversight costs each party tens of millions of dollars in litigation costs.
If you’re new to drafting contracts, here are some tips that will help you avoid these sorts of costly mistakes.
#1: Be clear about the parties and the subject matter
At its core, a contract is a set of promises between two or more parties concerning a certain subject. For example, an Automobile Purchase Agreement is typically entered between a car dealer (Party 1) and a car buyer (Party 2). The Agreement sets forth each party’s obligations with respect to the transaction. This sounds simple but it is an easy place for mistakes to be made.
Let’s say, for example, that Jane Smith walks into a car dealership seeking to buy a car on behalf of her business, “Jane Corp.” If the contract is drafted between the dealership and Jane Smith — instead of the dealership and Jane Corp. — it would create an entirely different set of obligations than Jane intended.
Specifically, she would be personally on the hook for making payments on the car as opposed to her business having responsibility. You can imagine what a nightmare that might create for Jane down the road.
#2: Be consistent with defined terms
Most contracts contain a “Definitions” section. Generally speaking, this section will capitalize certain terms that are intended to have meaning beyond what is typically understood. Using our prior example, the Jane Corp. agreement might have the defined term “Car.” The standard use of the word “car” could refer to any car that has ever been manufactured. But in our example, “Car” is defined as “a 2019 Mini Cooper Clubman, bearing Vehicle Identification Number XXXXXXX.”
By specifically defining this term, readers of the contract know that “Car” (with a capital C) can only refer to that specific automobile. If “car” (without a capital) is used elsewhere in the contract, readers know that the term is being used generally (e.g., “Party 1 is a car dealership located in Sunnyvale, California.”). See the difference? As you review contracts you’ve drafted, make sure the defined terms are capitalized only as intended.
#3: Understand basic principles of contract law
Law students are required to take an entire year of Contract Law in order to graduate. You don’t necessarily need to have all of that knowledge, but a basic understanding of contract principles is important if you’re going to be preparing agreements.
Concepts like offers, acceptance, and consideration are just a few of the basic things you’ll need to understand before you draft a contract. Fortunately, in the age of Google, you can give yourself a decent education in these principles. Also, don’t be afraid to ask your supervising attorney if there are particular concepts you need to understand before you undertake a contract drafting assignment.
#4: Don’t reinvent the wheel
Literally millions of people have written contracts before you and millions of people will do so after you. If you’re stuck on a particular contract clause, don’t be afraid to look at what your predecessors have done.
First, ask the assigning attorney if she has a template you can work from. There are dozens of standard clauses that your firm has perfected over the years and there is no reason you shouldn’t pull from others’ work. Things like Choice of Law clauses, Jurisdiction clauses, and Merger clauses will undoubtedly exist on your server. Use them.
If you’re still stuck after looking at firm documents, don’t be afraid to pull from online resources. Just make sure that you do more than a simple “cut and paste” job. Look at the language you’ve found and analyze whether it fits in your situation.
#5: Ask a litigator
This tip comes from someone who spent an entire career litigating bad agreements. Sometimes it is hard for non-litigators to see problems with contracts. The language is clear to you, why wouldn’t it be to everyone else? By asking a litigator to review your contract, you might get an entirely different perspective on the contract you’ve created.
Remember the five years of litigation that resulted from using “dehydrated vegetables” and “dehydrated vegetable products” interchangeably in a contract? That entire lawsuit could have been avoided simply by having a litigator review the agreement before it was put out for signature. Litigators are trained at finding ambiguities and holes in an agreement. For your client’s sake, why not turn to them before there is a dispute?
Do you have additional tips for drafting solid agreements? Let us know in the comments section, below.