MODULE 4 DRAFTING A CONTRACT “A verbal contract isn't worth the paper it's written on” - Samuel Goldwyn Writing a contract is an art. It is a step by step process. It should be done with great amount of care and caution. Drafting comes with huge responsibility since everything that is important and related to the agreement is dependent on the final written draft presented in the form of written contract. 4.1 WHAT TO INCLUDE? ion. Terms establish conditions precedent. English (but not necessarily non-English) jontractual terms are classified differently depending upon the context or juris common law distinguishes between important conditions and warranties, with a breach of a condition by one party allowing the other to repudiate and be discharged while a warranty allows for remedies and damages but not complete discharge. In a less technical sense, however, a condition is a generic term and a warranty is a promise? The points clearly intend to define the rights, and di ies of each party related to the contract, There Every contract has some points which are are many kinds of contract, and the subject matter for _ the reasons for its existence. Each point each one of it differs, therefore there can be no set ea!s with an explicit feature related to format on which it can be based. Every contract the subject matter of the contract. depends on the exact requirements of the patties. Every clause is tailor made to suit their specific wants. But there are certain clauses which are there majorly in almost every contract. For the purpose of common clauses, a contract can be divided into three sections: Like any other important document, the preamble SECTION 1: PREAMBLE is the most important section of a contract, an introduction and gives a bird's eve view of the whole contract. It tells about who are the > Giles P. (1988). Concise Contract Law, p. 105. Federation Press. This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationparties entering into the agreement and why are they doing so? It explains the purpose and scope of the contract and includes some most important details of it. ‘These are the conditions which both the parties agree to and have to perform for successful SECTION 2: TERMS OF THE completion of the contract. Some of the CONTRACT common conditions which are found in almost every contract are: NAMES OF THE PARTIES: Every contract has certain parties who promise each other something, Thus, it becomes important to know who they are to avoid any confusion. ‘Therefore, the very first thing that the contract should have is the names and full details, ike address, there job portfolio etc, of the contracting par Y CONDITIONS OF PERFORMANCE: This clause includes the mandatory terms which the parties have to fulfil, Not fulfilment of these terms would result ina breach of contract and the party at fault can be sued in the court of law for non-performance or a breach of contract. It also mentions the “time of essence” i.e. the time frame in which the terms have to be fulfilled. Y LIABILITIES: Every contract gives certain rights to the parties. But as itis known that every right comes with a duty. A duty to fulfil their responsibility with honesty. This clause contains complete details of the legal obligations of the parties that they have to comply with to avoid any kind of action against them. ¥ JURISDICTION: In this clause the parties mutually submit themselves to a particular jurisdiction. They agree on laws of a specific state according to which there contract would be interpreted. In the case of any dispute, which forum would be chosen is the main object of this clause. To be enforceable, they should not be in conflict with the general requirements of the law. Y REMEDIES FOR BREACH: This portion of the contract contains all the remedies that the parties mutually agree to get at the time of a proven violation or breach of contract. ‘These can be compensation, injunction ete. Y LIMITATION CLAUSE: According to the law of the land, there is a fixed period for filing of anycase in the court of law, Therefore, this clause mentions the time frame in which a lawsuit can be filed after a breach of contract or any other violation. Y INTELLECTUAL PROPERTY CLAUSES: If the subject matter of the contract contains anything that can be protected by intellectual property law ie. trademarks, copyrights, trade secrets or patents, then the contract should have a clause wherein This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationfull details of the subject-matter is given and the kind of intellectual property itis. Since, violation of IP is a different dispute altogether and is dealt with in completely different manner. Y CONFIDENTIALITY: What is confidential, and what is not-confidential? ¥ INDEMNIFICATION CLAUSE": These agreements indemnify (release from liability) the other party in the event that losses or expenses are incurred. These should be used with caution, as they could limit the ability to recover damages for losses. ¥ DISPUTE RESOLUTION CLAUSE: ADR stands for Alternate dispute resolution. It is a speedy and quasi-judicial process of solving a dispute. If both the parties agree, then in the case of a dispute it can be resolved through ADR methods like arbitration rather than litigation, Y DETAILS OF PAYMENT: If the contract requires any payment to be made by one party to the other, then this clause becomes important as it will contain all the necessary details, ike where, when, on the fulfilment of which prerequisite condition etc,, of the payment to be made. Y TERMINATION: If any party wants to cancel the contract at any point of time then, they can do so under this clause. This clause mentions all the situations under which a contract can be terminated or cancelled and also if this option is opted for then the cost the terminating has to pay to legally end the contract. Y SCOPE FOR REFORMATION: Reformation means rectification. Therefore, ifat any point of time there is any kind of time any party feels that something is lacking in the contract or they want to add to delete something or revise the contract, then this clause comes into play and it can be done after proper discussion with the other party or parties. REPRESENTATIONS & WARRANTIES CLAUSE: This clause is added to the agreement to ensure that the rights, duties and obligations of parties under the contract are adequately captured. ¥ SURVIVABILITY CLAUSE: This clause is inserted into the agreement to capture the intent of the parties as to which clauses would survive the termination/expiry of the contract. Usually, the clauses that survive the expiry/termination of the agreement 2ytrp://unmw.mondag.com/india/x/193518/Contract+Law/Contract*Reviewtamp+Drafting Rules +Onesshould * hetp://www acquisition gov/far/ntm\/Subpart%2026 6.hmilwvp1080953, This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationare Confidentiality clauses, IP clauses, representations and warranties clause, indemnification clauses. The other clauses that the parties would like to survive the expiry/termination of the agreement should be expressly mentioned in the agreement This is the last section of the contract. The parties to the ND contract put their signature here which tells that they have properly read and understood the contract and agree to each and every point and clause mentioned in it SECTION 4.2 CHECKLIST FOR PREPARING CONTRACTS W' writing the contract the writer should keep in mind following points: ‘ To start with it is good to make a complete outline structure of the contract. The first step should be determining the scope of the contract and how important is it? ‘Simple English should be used. Avoid jargons. ‘ There should be clarity in writing. Be precise (accurate, complete and, exact), specific, and focused. ‘Sequence logically by a chronology of events.* ‘ Terms of contract should not be drafted vaguely. It should appear to be free of, ambiguity and uncertainty. ‘© Think from the reader's point of view while wr Terms of contract should be reasonable and capable of performance. It should not be an impossible act. To decide the possibility certain question that would be helpful can bet 1 the contract. ARE ALL THE CONDITIONS POSSIBLE FOR YOUR ORGANIZATION I.E. CAN YOU CARRY THEM ‘OUT AS DESCRIBED IN THE CONTRACT? CAN YOU DO IT IN THE TIME SPECIFIED, FOR INSTANCE? EIS ANYTHING IN THE CONTRACT DANGEROUS TO THE FUNCTIONING OR THE LIFE OF YOUR. ORGANIZATION? WILL IT COST YOU MONEY YOU DON'T HAVE? DOES IT PUT YOU IN CONFLICT WITH THE PRINCIPLES OF YOUR ORGANIZATION, OR REQUIRE YOU TO USE A METHOD YOU DON'T BELIEVE IN? EZ Are THE RESOURCES SPECIFIED IN THE CONTRACT - FUNDING OR OTHERWISE - ADEQUATE FOR YOU TO BE ABLE TO DO THE WORK? IS COMPENSATION ADEQUATE TO PAY FOR * http://wwww.con-tracts.com/id29.htn} * hetp://etb ku.edu/en//tablecontents/sub section main 1873,htm This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationEVERYTHING YOU HAVE TO DO? IF YOU HAVE TO SPEND THE MONEY FIRST, THEN SUBMIT [ABILL TO BE REIMBURSED, CAN YOU HANDLE THE CASH FLOW? EZ Ane THERE PROTECTIONS WRITTEN IN FOR YOU, AS WELL AS FOR THE FUNDER, IN THE CASE OF DISAGREEMENT, OR CHARGES OF VIOLATING THE CONTRACT? EZ ARE THE RESTRICTIONS AND REGULATIONS, IF THERE ARE ANY, REASONABLE AND NOT DISRUPTIVE TO THE OVERALL OPERATION OF YOUR ORGANIZATION? ARE THERE LIMITS ON, WHOM YOU CAN SERVE, FOR INSTANCE, THAT WOULD MAKE OTHER PARTS OF YOUR WORK DIFFICULT? IS ANYTHING IN THE CONTRACT DIFFERENT FROM WHAT YOU'VE BEEN TOLD PREVIOUSLY? ‘THE LENGTH OF CONTRACT SHOULD NOT BE A MATTER OF CONCERN. IT CAN BE LONG OR aa SHORT. RATHER IT SHOULD BE OF A REASONABLE LENGTH AS 11'S THE CONTENT THAT MATTERS. EZ THE TIME LIMIT OF THE EXISTENCE OF THE CONTRACT SHOULD BE STATED CLEARLY. EZ THE OBLIGATIONS OF THE PARTIES SHOULD BE EXPLAINED CLEARLY AND HOW THEIR PERFORMANCE IS EVALUATED. ALSO, WHAT WILL HAPPEN IF ANY PARTY FAILS TO DELIVER. WHAT IT HAS AGREED TO? 4.3 BEST DRAFTING PRACTICES jontracts pervade our daily lives. When we buy food or clothing we are under contract, ‘when we buy a home and have gas, electricity, and water furnished to the house, we sign separate contracts. When we marry, we enter into a contract. When we write a check we act under a contract with our bank to honour the check, and the check itself may fulfil our obligation under another contract. When we go to the doctor or dentist, we act under contracts. We earn our livelihood under contract. The daily business of not only our households, but of the world, is conducted under a series of contracts. ‘The focus should stay on the content but a good drafting practice views a contract from every le angle. A good drafted contract can be a noteworthy defining factor in the profitability ofall the parties entering into it. The lives of deals between the contracts depend largely on the contract. With the increasing level of the competi the economies around the world what is the key to success is a good drafted contract. Effective drafting strategies also are critical. Drafters should inculcate and develop the art for designing, negotiating and drafting agreements, in order to reduce risks and to maximize business influence. In today’s supply chain, it is becoming increasingly important for drafters to understand key provisions in supply agreements is critical to negotiating and approving This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationsupply agreements, managing supply relationships, and resolving potential and active disputes. As already mentioned drafting is an art. Best drafting practise is no set format or guide, rather itis an applying best points of drafting that is incorporated while drafting a contract. Let's see some of these points that can be include into the contract to convert into a good drafting piece. These are: Y PRE DRAFTING STAGE: In the very beginning the focus should lay on what to include, how to organise the document and the process of creating that document. The importance of the pre-drafting stage is often underestimated but it is vital to invest time and effort at this point not only for the clarification of the respective roles and responsibilities but also to facilitate the drafting process and minimise the risk of future misunderstandings. That said, itis important to avoid going into excessive and potentially confusing detail. Y STYLE: Style is the way the contract is written. The clauses, points and everything that can be called as content should be easy to read and readily understandable. Every drafter has their own style. They should follow that but the only thing that they should not loose is the easily understandable contract. Some points which should be there irrespective of the style of writing is that the document should be: Crisp Understandable Complete Logical Clear vvvvyv The simpler the document the better it would be. Simplicity is the assurance of best drafting practise. One might think bringing into more flowery language; using complex words make any document strong. But the truth is the simpler itis, the more effective it would be. It would be advised that while writing the drafter should keep an eye on how they will read and seek to write in a style that is easy and pleasant to read.’ Y RECOGNIZE THE WHY: Before beginning to draft, the drafter should identify the reason behind formulating the document. Discuss in detail the reasons with the parties. involved, note it down and figure out as to what is essential and what is not for the document and then finally structure them. * hnyp www autoindustrylawblog conv201 5101/08 bestpractices-for-designing-negotiating-and-drafting- supply-chain-agseements Tp //www at gov aw/Publications/Speeches,AndPapers/Dowmes/ExcellenceDecisionMakingOectobe:2010 htm This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationBest drafting practices shows that the structure should be in a manner that the points are logically placed. The agreement should start with introduction, then move on to the clauses and then finally end with the consent of the parties. The most important clauses should be mentioned at the outset itself and then move on in the decreasing order of importance. Y ESSENCE OF THE CONTRACT: As mentioned above the opening of the contract should be with introduction of the parties, immediately after that the object of the contract should be laid down. The object should clearly convey anyone who reads the contract the reasons and aim of the contract. Best drafting practise Says that it should be done ina way which is comprehensible by the ordinary reader. "The purpose or the object of the contract is instrumental in the construction of the contract. It should be understood properly and should be clearly conveyed to the parties by the way it is structured. The purpose defines the scope, design, and requirement of the terms to be included in the contract. For example: a franchise agreement shall have the terms related to duration of franchise, area restriction of franchise, royalty, and intellectual property etc.; a supplier agreement shall have the terms related to delivery of goods and services, price payment schedule, quality standards, indemnity, rejection and re-delivery of goods, and dispute resolution ‘mechanism etc.; a confidentiality agreement shall have the terms related to definition of confidential information, duration of confidentiality, exceptions to confidentiality, and breach of confidentiality etc,; an arbitration agreement shall have the terms related to reference to arbitration, appointment of arbitrator(s), choice of arbitration law and fees of arbitrator(s) etc. Y NOTHING IRRELEVANT: In the world of business the most important aspect is time. Nobody has time to go through irrelevant stuff. Therefore, the need of the hour and best drafting practices suggest that the deal should be reduced to essential elements put together in a contract. Parties want the result and the shortest, clearest explanation through the contract, Nobody wants to know how the clauses were decided, why only these particular persons are party to contract, why is the deal being sealed. The only important point is the essence of the contract, rights and liability of the parties and the other clauses mutually agreed by the parties. They only want a contract for a particular deal that would be profitable for them. Therefore: © Omit anything not relevant. Shp /www mondag.conv/ndi/*/193518/Contract+Law/Contract*Review amp +DraftingRules*OnetShould ‘Know This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationThe clauses of the contract should be clear, logical and comprehensive. Y KEY DETAILS SHOULD NOT BE LEFT: A contract must accomplish the objectives of the parties even while it protects the client's interests. Occasionally, clients want to omit material information from the contract and rely on vague descriptions to be determined later. For example, it’s not uncommon to see contracts for “consulting services” that do not specify the nature and type of services. Unfortunately, these contracts leave the door open to disputes. To ensure precision and completeness, review a checklist with your client to flesh out the material terms. For example, to add precision to the broad term “consulting services,” it is a good idea to attach an annex that lists the specific consulting activities, service levels, and other details. Clients will appreciate the clarity that results from this process, and the contract will better reflect the parties’ bargain.? Y SHORT MEANINGFUL SENTENCES: The longer the sentences the complex the document becomes. A single sentence should express only one idea ie. the meaning of the sentence should be clear in the first go. The reader should not feel lost in the sentences. The length sentence should never kill the purpose. The length of the sentence should always be what is required. ¥ SIMPLE ENGUSH: The key point is that all aspects of the contract, whether clauses or schedules, should (where possible) be written in plain English with short succinct sentences that are easy to follow and understand. In those cases involving complex legal issues and concepts, itis often instructive and perfectly acceptable to provide a “worked example" to illustrate and underline the form of wording used.*° IDENTIFY THE LAW APPLICABLE: A well-written contract of any kind takes into account legal issues. It should clearly describe the law that will apply on it, the jurisdictions and the rights and liabilities of the parties. The contract should always be drafted keeping the parties in mind and not as a lawyer, as they are the audience with the greatest need for the information required to be disclosed in a contract. It makes it easier for nin the whole the parties to read and understand the contract and their correct posi scenario. Y- Use the active voice": It is generally easier to understand the active voice as it is engaging and easier to read. The active voice generally uses fewer words and permits ® jp rw ao. comegalresourespublictionstogtent cin 205 np /worw mas gov s Pb lications/Consultation®«20Papers!150205%20Co nsultation’420paper*4200n%20Guidelines4200n*420Good:20D rafting 420Practices**20for® 20Prospectuses, pat This document is produced by trial version of Print2Flash, Visit www print2flash.com for more informationthe use of strong verbs that highlight who the action-taker is. While the passive voice may be preferred on occasion, it should be used sparingly as it may add length to sentences and obscure the identity of the action-taker. Y__ USE PLAIN, EVERYDAY WORDS:"? Itis always easier to read plain, everyday words that are commonly understood. You should avoid using complex, abstract or formal words whenever there are simpler and clearer alternatives. Y AVOID THE USE OF LEGAL, FINANCIAL OR TECHNICAL BUSINESS JARGONS EXCEPT WHEN NECESSARY: Whenever possible, you should always use plain, everyday words to get your point across to parties. However, if using legal, financial or technical business jargons is a must, it should be explained the meaning of these terms clearly when it is first used and considered putting the terms in_a glossary for ease of feference, The explanation for such terms should be clear and simple so that the parties would be able to understand your explanation. Y AVOID “CUTTING AND PASTING”? Cutting and pasting contractual terms in_its entirety from legal documents is a big NO No. Lengthy contractual terms and legalese are difficult to read and understand. instead, the key points of the legal documents should be summarised clearly and concisely in plain English to facilitate easier understanding. 2h ttp://wwu.mas. gov sg/~/media/MAS/News%620and%20Publications /Consultation¥s20P apers/150205%20C consultation’420paper%200n%20G uidelines%200n%20Good}420Drafting%s20Practices%20for420Prospectuses. pdf p/w mas gov se/~/media/MAS/News%20and%<20P ublications/Consultation’420Papers/150205%20C consultation’420paper%200n%20G uidelines%200n%20Good3420Draftings20Practices%20for420Prospectuses. bof This document is produced by trial version of Print2Flash, Visit www print2flash.com for more information