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Ten Commandments of Contract Drafting

I just finished teaching my spring contract-drafting course for 3L students. This semester I’ve been trying to articulate some easy-to-remember rules for effective drafting. Here’s what I’ve come up with so far. Follow these rules and you’ll go a long way toward creating a serviceable contract.

Think of the contract as a trip plan

It’s helpful to think of contract drafting as planning a trip with acquaintances. The planner — that’s you, and maybe others — should try to anticipate opportunities and threats that the client could encounter along the way. ADDED 2014-07-02: I wrote this up in more detail in this subsequent post after coming back from a business- and vacation trip to Europe.

Write down all specific commitments, and prerequisites, and exceptions

Brainstorm everything that your client will want the other side to do. Be specific and succinct. Use as many of the 5Ws (who, when, why, where, what) as necessary.

Then list all the prerequisites, and all the exceptions, that you can think of.

Here’s a hypothetical example:

1 Bob will sell Alice his 2012 MacBook Air computer, serial number 123456789, with all of its installed software, on the terms of this Agreement.

2. Alice will buy Bob’s computer on the terms of this Agreement.

3. The sale price is $800.

4. The closing will take place at the parking lot of the Wal-Mart at 9555 South Post Oak Road in Houston, Texas at 10:00 a.m. on May 10, 2014.

5. The parties may agree in writing (for example by an exchange of emails) to change the date and time of the closing.

6. Between now and the closing of the sale, Bob will:

a) not use the computer without running up-to-date anti-virus software on it; and

b) remove the Grateful Dead decals that are currently glued to the lid, along with all glue residue.

7. [Exception:] Bob need not run anti-virus software on the computer when the computer is not connected to the Internet.

8. At the closing, Alice will pay Bob the purchase price in the form of a cashier’s check drawn upon a U.S. bank.

9. [Exception:] Alice may cancel the sale if the Grateful Dead stickers are still on the computer at closing.

10. [Prerequisite:] When Alice pays Bob the purchase price, Bob will give Alice the computer.

This is a bare-bones contract. To me, it looks binding and enforceable.

Write down “Plan B” for various contingencies

Things can go wrong in contracts. Suppose the other side fails to perform. Sure, your client can file a lawsuit. But is that really the best way to handle the matter?

Whenever possible, come up with an agreed Plan B in case things go wrong. Write it down.

(Things can also go unexpectedly well; it’s good to plan for that, too.)

Here’s an example:

11. If the computer becomes inoperable within five business days after the closing, then Bob will take the computer back and give Alice her money back.

Write down all of the other side’s assertions on which your client is relying

If your client is relying on a particular factual assertion by the other side, then say so explicitly in the contract. That will help the client if the factual assertion turns out not to be true. See the Common Draft commentary for a more-detailed discussion.

You don’t necessarily have to use legalese such as “Bob represents and warrants ….” Consider using plain language instead, such as the following:

12. Alice is relying on Bob’s statement that the computer has 8 GB of RAM and a 256_GB solid-state drive (SSD) and is in good operating condition. [Exception:] Alice may cancel the sale if Bob’s statement turns out to be incorrect.

(Keep in mind that there’s a difference between a representation and a warranty.)

Write down any necessary disclaimers

In some cases, the law requires particular disclaimers to be spelled out.

For example: Suppose that Bob isn’t sure whether he actually owns the computer. Under the Uniform Commercial Code’s article 2 for the sale of goods, he would have to specifically disclaim any warranty of title.

Write short paragraphs

Notice how short the paragraphs are in the hypothetical examples above. This is a  good way to serve the reader.

Don’t inflict a document like this one on your readers, because:

  • You wouldn’t like it if someone did it to you.
  • It’d take the other side longer to review the contract, which would delay getting the deal to signature. Clients don’t like that.

One topic per paragraph

Contract reviewers like to be able to skim quickly over a draft. Help them out by addressing just one topic in a paragraph.

Want to make a contract reviewer crazy? Draft a long paragraph, and in the middle of it, suddenly veer off into a completely-different (and often-unexpected) topic, not uncommonly with the words “provided that ….”

Write short sentences

Help the reader out: Break up long sentences.

If you must write a long sentence, consider using parenthetical numbers like (1) this, and (2) this, to break it up.

D.R.Y.: Don’t Repeat Yourself

If you want to say something in a contract, say it just once.

  • If you were to say it a second time elsewhere in the document, and then you had to revise it during the negotiation process, the chances are good that you’d forget to change one of the two.
  • Then if a dispute were to arise later, the parties would have to battle out which version represented the parties’ true intent.

True story: Last week, one of my clients and the other side of a deal agreed by phone to change a period of time from 120 days to 60 days. When the other side’s circulated a revised draft, it read, “one hundred twenty (60) days.” To quote Rick Perry: Oops.

The same rule applies to monetary amounts, incidentally. Wrong: Ten dollars ($10.00). Right: $10.00.

Remember that contracts are about persuasion

As a contract drafter, your ultimate goal is to persuade a judge and/or jury to rule in favor of your client.

But your persuasion job doesn’t start there. You have to persuade the other side to sign the contract. You might even have to persuade your own client. In some cases these are easy sells; in others, not so much.

Persuasion might be necessary in performing the contract: It’s not uncommon for contracting parties to decide they’d really rather not do what they committed to do; not everyone behaves in the honorable way Reba McEntire sang about in [You Came Along] One Promise Too Late. Against that possibility, it can help for the contract to be very explicit about what the parties must do.

(Pro tip: You might be concerned that someday the other side’s lawyers could try to twist the contract’s wording. Try adding a statement prefaced by “for the avoidance of doubt,” to make it very clear what the intent is. Some drafters abhor doing this. It definitely can be overdone. In the right circumstances, though, a few extra words can be cheap insurance.)

Conclusion

It takes a little bit of practice to get comfortable drafting contracts in accordance with these rules. It’s well worth the effort. These rules will help you get your clients’ agreements to signature more quickly and in good shape. This will endear you to them.

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