Avoid the Pitfalls of Careless Contract Drafting

Each day millions of businesses, individuals, and non-profits make law that spells out their rights, duties, and obligations.  They do this by entering contracts.  A contract is an agreement between two or more parties containing legal obligations that carry the force of law.  It can be surprising how little attention is paid to contracts before signing them.  In some cases, parties enter multi-year agreements or incur thousands or millions of dollars in obligations without carefully reviewing the agreement. 

Reasons abound why people do not pay careful attention to their contracts before signing them.  It is a common belief that if the contract is with a large corporation on their “standard” or boilerplate form that it cannot be negotiated or changed.  Some people may be intimidated by the length of the contract or think that they will not understand the “legalese.”  Others may trust the other party implicitly and see no reason to question the contract or think it would be insulting to ask for changes.  We do not think any of these are good reasons to neglect carefully negotiating, drafting, and reviewing contracts before signing them. 

It is of utmost importance that an agreement be clear before signing it.  This means that ambiguous terms should be defined and used consistently throughout the agreement.  The rights and obligations of each party should be precisely described to minimize any misunderstandings and to ensure that each party receives what he or she expected.

Agreements should also be consistent.  Each provision of the agreement should be analyzed to make sure it does not contradict any other provision.  It may not be obvious when provisions are contradictory because subtle changes in wording or use of defined terms may lead to inconsistencies in other parts of the agreement.   Consistency also means that the agreement accords with legal rights owned by each party and does not violate any duties owed to others. 

Because the written contract will usually constitute the entire agreement between the parties, it is critically important that the agreement be comprehensive.  The agreement should include all material terms agreed to by the parties during negotiations.  As a general rule, if a term or provision is not in the final version of the written agreement signed by the parties it will not be enforceable.  Even if a party verbally agreed to do something during negotiations, if that obligation is not in the signed version of the agreement the other party will have no remedy to enforce that obligation.  A good drafter will also include terms that the parties may not have discussed, but will help the parties resolve disputes or misunderstandings with minimal inconvenience. 

Finally, agreements should be concise. The nature of the parties or subject matter of the agreement may mean that a shorter agreement is better than a longer one.  This may seem to contradict the principle that the agreement should be comprehensive, but sometimes it may not make sense to include all provisions that could have a bearing on the agreement.  For example, it is unwise to include provisions in an agreement that will be ignored or that will be impossible to fulfill.  In some circumstances the value of the transaction may not justify that time and expense needed to minimize every conceivable risk.        

A well-drafted contract will help each party understand its obligations and what to expect in return.  The best time to address concerns and make sure the contract accurately sets forth each party’s understanding is prior to signing.  Taking pro-active steps to carefully draft an agreement can save time, money, and inconvenience by staying out of arguments or litigation after the parties have started fulfilling the contract.  If we can help you by reviewing, drafting, or evaluating a contract please do not hesitate to contact us.

This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.

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