This Legal Guide explains how to draft a GREAT contract.
Start With a Clear Title
A good contract begins with an accurate title or caption. For example, "Horse Purchase Agreement"
Include a Clear Introduction
Stop using the "Whereas" and "Therefore" format. Instead, try something like this: "This is an Agreement ("Agreement") between John Jones ("Jones") and Suzy Smith ("Smith") for the purchase of Jones's 50% interest in the horse known as Silver."
Define Key Terms
Define technical words or terms of art.
Headings allow a reader to quickly see what each paragraph is about.
Number the Pages and Paragraphs
Numbered paragraphs and pages make it easier for readers to find and discuss specific portions of the contract.
Specify the Date, Time, and Place of Performance
Wrong: "Jones will deliver the horse to Smith." Correct: "Jones will deliver the horse to Smith at 574 Ridge Road, Durango, Colorado, by 5:00 p.m. on August 1, 2015, at Jones's expense."
Include an Attorney's Fees Clause
The general rule is that a court will not award attorney fees unless authorized by statute, rule, or a provision in the relevant document. This is why good contracts include an attorney fees provision stating that in any dispute the Court must award attorney's fees to the prevailing party.
Include a Venue Clause
In litigation, as in sports, home field advantage is real. Always include a clause that specifies the exclusive venue for any dispute will be in the county where your client resides or has its place of business. Example: "The parties agree that the exclusive venue for any litigation arising out of this Agreement will be in the District Court of Boulder County, Colorado."
Include a Waiver of Jury Trial
Jury trials cost money. Judges are better equipped to understand legal documents and testimony from economists and experts. There is nothing juries like less than being forced to listen to two profitable businesses fight over money.
Include a Merger (or Integration) Clause
A merger clause (sometimes called an integration clause) provides that the contract represents the complete and final agreement of the parties and that all prior discussions are merged into the contract. Good contracts include a merger clause to prevent parties from later alleging there were other promises or representations not included in the written contract.
Litigation sometimes arises when a party claims the parties orally modified their agreement after signing the contract. A good contract provides that any modifications must be in a writing signed by all parties.
Address Dispute Resolution
A good contract specifies the method the parties will use to resolve disputes, such as mediation, arbitration, or litigation. Address all issues in advance. Example: "In any dispute arising out of this Agreement, the parties will participate in mediation before filing suit. The mediator will be Jane Johnson of XYZ Mediation, Inc., and the mediation will be held in Boulder, Colorado. The mediation may not last longer than eight hours unless both parties consent. The parties will each pay half of the costs of mediation. Any party may initiate mediation by sending a written demand for mediation to the other party. If the other party does not respond to the demand within fourteen days or fails to participate in any scheduled mediation agreed to by the parties, the party sending the demand may seek an order compelling mediation, and in that event the party that did not respond to the demand or participate in the scheduled mediation shall pay the actual attorney fees and costs incurred by the party seeking an order to compel mediation."
Specify the Governing Law
Many contracts involve parties living or operating in different jurisdictions or that operate in several jurisdictions. It is important to specify what jurisdiction's law will govern to avoid disputes on that issue.
Include a Non-Assignment Provision
Generally, nothing prevents a party from assigning its interest in a contract to some other person or entity. You don't want your client's local supplier to assign its interest in a contract to a supplier in North Korea. Here's a sample clause: "No party may assign its interest in this Agreement without the consent of the other party."
Use Short Sentences
WRONG: "No person has been or is authorized to give any information whatsoever or make any representations whatsoever other than those contained in or incorporated by reference in this document, and, if given or made, such information or representation must not be relied upon as having been authorized." (47 words)
RIGHT: "You should rely only on the information contained in this document. We have not authorized anyone to provide you different information." (21 words)
Avoid Passive Voice
In the active voice, the subject of the sentence performs the action. In the passive voice, the subject is acted upon. The active voice requires fewer words and tracks how people think, and you should avoid it.
ACTIVE: "Either party may terminate this contract on thirty day's written notice to the other party." (15 words)
PASSIVE: "This contract may be terminated at any time by either party on thirty day's written notice to the other party." (20 words)
Use Personal Pronouns
Personal pronouns speak to the reader and help avoid abstractions. We can't have that in a bad contract.
Without personal pronouns: "Unless otherwise inconsistent with this Agreement or not possible, INSPECTOR agrees to perform the inspection in accordance with the current Standards of Practice of the International Association of Certified Home Inspectors ("InterNACHI") posted at www.nachi.org/sop.htm. Although INSPECTOR agrees to follow InterNACHI's Standards of Practice, CLIENT understands that these standards contain limitations, exceptions, and exclusions."
With personal pronouns: "Unless otherwise noted in this Agreement or not possible, we will perform the inspection in accordance with the current Standards of Practice of the International Association of Certified Home Inspectors ("InterNACHI") posted at www.nachi.org/sop.htm. You understand that these standards contain limitations."
Don't Use Unnecessary Words
Here are some examples of simple words that can be replaced with superfluous words:
If In the event that
Although Despite the fact that
Because Owing to the fact that
Avoid Legalistic Words
Avoid words such as "Aforementioned" and "hereinafter." Avoid Latin.
Keep the Signature Block Simple
Many contracts end with something like this: "IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written." Instead, consider something like this:
John Jones (Date)
Suzy Smith (Date)
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