Watch out for ambiguity when drafting a contract.
Many lawyers define themselves as being involved in either litigation or transactional law. In fact, I do this myself. And for many, the distinction may be somewhat warranted. But if you’re a solo practitioner or small-firm attorney, there’s a good chance that your work involves at a little of both. Even if your practice focuses primarily on litigation, there’s no reason you shouldn’t be able to competently draft a straightforward contract for a client. It’s a skill that every lawyer should possess.
Here are a ten simple tips for getting started on your next contract.
1. Have Your Client Prepare the Outline
Before you begin drafting the contract, ask your client to prepare an outline of the agreement as they understand it. They can write it out or talk it out with you. You probably won’t build the contract directly from their outline, but it will create a blueprint of the points that are important to them. Your client’s outline also serves as a good starting point for discussing other critical issues that that they might not have thought of and should be addressed, such as what should happen if one party breaches the contract or if circumstances change in any way.
2. Be Clear
Ambiguity has been the cause of death for many contracts throughout history. To avoid that fate, it’s incredibly important that the language you use in your contract is—above all else—clear. Avoid ambiguous terms and flowery language. Many experienced transactional attorneys I’ve spoken with recommend that your contract be clear enough that a layperson will understand the terms of the deal. In this case, it’s good to think like an attorney but not sound like one.
Similarly, you should be clear in your use and placement of conjunctions (i.e. “and,” “or,” and “but”) and modifiers (i.e. “actively,” “knowingly,” and so forth). For example, if a contract states that a party is required to “actively market and sell” a product, it’s not entirely clear whether the party must be actively selling the product throughout the term of the contract, or if a plan to sell in the future would be acceptable so long as the party was actively marketing the product from the start. If both were required, the contract should state that the party is required to “actively promote and actively sell” the product. Conversely, if only active marketing—and not active selling—is required, the contract would be better written in reverse (i.e. “sell and actively market”) so that it’s clear that the modifier only applies to the final term.
3. Be Concise
Cut unnecessary words or phrases. This helps ensure not only that the contract is straight-forward, but also that the contract isn’t creating any inadvertent obligations, conditions, distinctions, and so forth.
4. Be Consistent
Once you’ve defined a party or term, be consistent in your use of it. For example, if you define one party as “Buyer” early in the contract, don’t refer to them by other names later in the contract. Instead, continue to refer to that individual as “Buyer” throughout. After all, your goal when drafting a contract isn’t to make it interesting. Unlike in creative writing, repetition in contracts is not a sin, it’s a virtue.
5. Include Recitals
Recitals typically appear at the beginning of a contract, and provide context for the agreement. They often begin with the word “whereas” (i.e. Whereas, Buyer seeks to purchase real property from Seller…”). Although the recitals aren’t required, they provide enough background that an outside party (such as a judge or jury) can quickly understand the parties’ intent.
6. Define Important Terms and Parties
It’s a good idea to define all important terms as you use them. For example, if your contract specifies that “profits” are to be split between the parties, then it’s also a good idea to specify whether you are referring to gross profits or net profits. Similarly, the contract should clearly specify what sales or proceeds will be deemed “profits” in the first place. Likewise, if your contract involves the buying and selling of property, define the property clearly enough that it could be identified by a third party otherwise unfamiliar with the deal. The same is true when identifying the parties to the contract.
7. Avoid Inadvertently Using Words With Legal Significance
Some words have greater significance to a lawyer than they might to a layperson. While this may be obvious, it’s an essential point to remember when drafting a contract. After all, the difference in legal meaning and standard usage of a word can lead to confusion in a contract. For example, labeling an individual as an “agent” can carry specific legal significance in terms of the individual’s legal authority to act on a party’s behalf. For this reason, you should be very careful any time you use a word that you recognize as possessing a specific legal meaning. If you don’t intend to apply that specific legal meaning, choose another word.
8. Write Numbers in Both Words and Numerals
When you’re reviewing your contract, it’s incredibly easy to make small errors like misplacing a comma, dropping a zero, or omitting a decimal point. But when those decimal points, zeroes, or commas are important aspects of the contract (such as when they define the amounts of cash or stock exchanged), it’s important to avoid mistakes. By providing numbers as both numerals and words, such as writing “one thousand (1,000)” in this format, you decrease both the risk of making a costly error.
9. Plan for Litigation
The goal of drafting a good contract is to avoid ending up in court. Nonetheless, you should draft a contract as if you are expecting every term in it to be fully litigated. If a term is important to your client, make sure there is no ambiguity as to what is required, when it is required, who it is required of, and so forth.
Moreover, consider issues such as where you’d like the contract to be litigated (i.e. which venue would be the best choice for your client?); which law will govern the contract; and whether your client prefers mandatory arbitration or mediation. Include provisions that address each of these issues.
Are you a transactional attorney with experience drafting, negotiating, or litigating contracts? Share your tips in our comments section.