Contract Drafting

In this article, Priya Ashok Agrawal pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses How to improve your contract drafting skills.

Introduction

Writing is an art and the same could be or should be developed only by self- practice, and it cannot be accomplished only by reading books. Hence, the importance of contract drafting is not only great but also very very great. For the purpose of having, at least, some command on contract drafting, one has to make sincere efforts to master it.

What is drafting?

Drafting means to draft or to draw up. It is the process of converting the underlying intention of the party or parties into a written document.

The importance of contract drafting

As the Sun needs no introduction, the importance of the study of law need not be explained. It is said that Law is the King of the Kings. It is, therefore, most powerful and rigid, too. At this background, we have to consider the fact that if Law is the King of the Kings, drafting of pleadings, contracts and conveyancing is undoubtedly the Queen of that King.

“Lawyers have two common failings. One is that they do not write well and the other is that they think they do”.

(Carl Felsenfeld, ‘The Plain English Movement in the United States,’ Canadian Business Law Journal, vol.6, 1981-82)

Aim of drafting a contract

As a general rule, a drafter should give effect to its client’s intentions by ensuring that his/her document is:

  • accurate and in-tune: aim to understand the transaction and embody the client’s instructions;
  • complete: aim to deal with all eventualities that ought to be covered;
  • precise: aim to avoid ambiguity;
  • clear: aim to draft in a style that is readily comprehensible;
  • contemporary: aim to use words only in modern usage and delete archaic expressions; and
  • short and simple.

Drafting skills

To achieve the abovementioned aims, several drafting skills are required. These include:

  • Effective communication with the client when taking instructions. This involves finding out all the relevant facts, the background in which the document is to operate, the client’s stated intentions and, when appropriate, further questioning to determine a client’s underlying aims;
  • The ability to think clearly through the whole transaction, to recognize the potential problems and advise the client in relation to matters he or she has not yet considered but which may arise;
  • The ability to negotiate with any other parties to the transaction and their legal advisers;
  • An awareness of the possible audience – for example, judges, real estate agents, and accountants- who may interpret the document;
  • A sound knowledge of the relevant principles of the law – that is, the law relevant to the transaction in which the lawyer is engaged and to the construction of documents. This is the most important skill, as without it none of the other skills can be effectively exercised; and
  • A good understanding of the correct use of English.

Guidelines for improving contract drafting skills:

  1. Clear thinking on paper:

Good writing is clear thinking on paper. It has its foundation in thinking, planning, and organization. Planning and organizing material will force one to address difficulties at an early stage, save considerable revision time and produce a clearer, more readable document.

Before you start writing, you should consider:

  • your aims;
  • your readers;
  • how you plan to organize your writing;
  • the layout and other conventions you will adopt.

Summarize and seek information

The cause of many negligence claims can be traced to a failure in communication. If any matter remains unclear, you should always seek clarification. Make a careful note of the meeting or telephone call and place it on file. Once you have a good enough grasp of the essentials, summarize them in writing for your client to verify.

Use gender-neutral language

Using non-sexist language is important. The removal of sexist language is far from a trivial matter, though it is sometimes represented as such by those who do not understand the issue. Many of us have grown up using sexist language unconsciously, and are not really aware of the alternatives. Language perpetuates the prejudices and values of the society in which that language evolves, through most of its history, the English language has evolved in a patriarchal or male-dominated society. You must take special care to avoid sexist language.

Terms required by statute

Perhaps the most obvious step in preparing a contract is to identify the provisions it ought to contain. The statutory provisions relevant to your contract will naturally vary from one field of law to another, but you need to be sure that you have identified anything that may affect the validity or applicability of your contract.

Sometimes an Act or other provision may have the effect of requiring a further step to be undertaken if a particular term is included, for example, The Competition Act, 1998 requires registration of certain restrictive agreements.

Terms required by Common Law

Common Law requirements are generally better known and on the whole, much less onerous than statutory requirements. Nevertheless, it is surprising how often lawyers become more entranced with particular statutory or other requirements that they seem to forget the most basic principles, for example, a past consideration will not support a promise as a binding contractual obligation.

Make sure that you are clear on the differences at common law between terms, representations, and indemnities. Keep in mind the possibility of things going wrong.

If your client wishes to make provision for liquidated damages, make sure that you know the principles surrounding penalty clauses and the difference between a liquidated damages clause that operates on breach and a clause that merely operates on termination (and is unaffected by the penalties doctrine).

Standard protective terms – Boilerplate

One of the skills to be acquired is the ability to analyze a transaction and be able to imagine all the things that could go wrong. You will then be in a position to anticipate problems by ensuring that your client is properly protected. You will usually find standard protective terms in precedents. These terms are often referred to as ‘boilerplate.’

Boilerplate terms are terms that do not have to be included in a contract for it to be valid and effective but are normally included for the protection of one or other party. For example, an entire agreement clause, a force majeure clause, a further assurance clause, a ‘time of the essence’ clause, etc. A solicitor who fails without good reason to include such terms in an appropriate case could be exposed to a negligence claim.

Draw up a list of the terms you think you will need at the start of the planning process and tick them off as you draft the document.

Traps and Pitfalls Checklists

Traps

  • Tax – What are the tax implications of the transaction?
  • Registers– Are there any registers which should be searched or in which the transaction should be recorded?
  • Authority– Have all parties to the transaction the necessary authority?
  • Periods– Have you carefully noted all relevant time periods?
  • Standard terms– Does the contract contain all the usual standard protective terms or ‘boilerplate’?

Pitfalls

  • Practicalities– Have you thought about how the transaction will work and any practical difficulties there may be?
  • Insolvency– What would happen if a party became insolvent?
  • Termination– In what circumstances will the effect of the document come to an end?
  • Failures– What is the machinery and how is it to operate if things go wrong?
  • Attendance note– Have you recorded in an attendance note and placed on file for further reference (and for your protection) any important item of information communicated orally?
  • Liquidated damages, penalties, and termination payments– Do you wish to provide for pre-estimated losses and, if so, are they to be payable as a result of a breach or following exercise of a specific right to terminate?
  • Limitation and exclusion clauses– Exercise extra care to ensure that these clauses are unambiguous and that they are not likely to be rendered invalid by the Unfair Contract Terms Act, 1977 or other statutory or common law rules.
  • Specific performance– Are you confident that you know the principles and the circumstances in which specific performance would be available in your transaction? This may be crucial in cases of default or insolvency.

Planning before drafting

Plan the contract as a logical structure. Having gained a sound understanding of the transaction, perhaps having drawn up an outline, and identified the terms your contract should contain, you should group them under broad headings set out in a logical and natural order. Start with major headings and once you have the essential structure for your contract, expand the headings into clauses and sub-clauses.

Definitions are among the most challenging provisions to draft and benefit from careful planning. Allocate a separate sheet for a plan of the words and expressions you will need to define and draft provisional definitions.

If you follow this procedure, provisions relating to a particular topic will be properly grouped together and not scattered at random throughout the contract. Further, this process will not only provide you with a structure with which to work but may also indicate gaps of which you were previously unaware.

Conclusion

The goal of drafting is to memorialize a transaction in a manner that is concise, precise, direct, consistent, user-friendly (usually), and to a reasonable degree, complete. Of course, all these must be balanced with practical realities, budgets, and other needs of the client.  These principles should remain in the back of one’s mind at all times while drafting any contract.

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