Drafting Contracts: Everything You Need to Know
Drafting contracts is a challenging task, but it's also an essential one, no matter what type of business you're in. 3 min read
Drafting contracts is a challenging task, but it's also an essential one, no matter what type of business you're in. While business owners and managers will draft some contracts during their career, more complex contracts will need input from a business attorney.
How to Draft a Contract
To be valid, contracts must follow some guidelines on the elements they contain:
- Intent to enter into a contract
- Consideration (exchange of value)
- Written agreement (in certain situations)
An offer can be revoked at any time prior to acceptance. If there is a time limit on the offer, you can't revoke it until that ends. A rejection is when the other party declines the offer. If the other party rejects the terms as proposed and comes back with a modified offer, it's called a counteroffer. Acceptance can be in writing, via a verbal statement, or by one party starting to perform the agreement.
In addition to the contract terms, keep some other guidelines in mind:
- Write in a language that both parties understand.
- Don't use difficult or confusing legal terms.
- Establish roles and responsibilities and outline due dates.
- Keep the terms easy to follow and include details on when payments are due and how they will be made.
- Include termination terms and a confidentiality clause when necessary.
- Ensure the contract doesn't violate any laws, and outline legal remedies. This may include rights to legal fees reimbursement and details of how any dispute or breach should be handled — arbitration, mediation, etc.
Tips for Drafting a Contract
- Before preparing a contract, have the client prepare a summary of the agreement.
- Discuss with the client to determine what the most important elements are to use as a starting point.
- Be clear and avoid any ambiguity.
- Avoid legal jargon and make the contract easy to understand for an average person.
- Pay close attention to the placement and use of conjunctions and modifiers so they don't alter the contract meaning.
- Don't use too many words. Keep it clear and concise.
- Remain consistent throughout the contract. If you define a term, ensure the meaning doesn't change. Also, take care not to refer to the contract parties in a different manner throughout the document.
- Use words like “whereas” and other recitals, which offer context.
- Stay away from words that carry a different meaning or are only recognizable to someone in the legal field, versus the average person.
- Use both words and numerals when writing numbers to avoid a mistake like a missing decimal point or comma in the wrong place.
- Anticipate litigation. Draft a solid contract that is not likely to wind up in court.
- Ensure the contract has terms that cover nonperformance, or default. Outline the remedies for the party who was defaulted on, or what happens if the parties have a falling out.
- Make sure you understand every aspect of the contract.
Don't forget important details and provisions like in what venue would the case be litigated, what law governs, and any alternative resolution options.
A contract should be able to answer the following:
- Who are the parties executing the contract?
- What are their obligations?
- When is the due date?
- Where does the contract take place?
- How is the contract to be fulfilled?
- If money or goods are involved, what is the value?
Watch Out for Potential Pitfalls
- Don't draft a contract from scratch. Use a good template and modify custom language and terms as needed. Westlaw Next has examples of tested contracts.
- Consider using a tool that can find undefined terms and misplaced or inconsistent references and definitions.
- Leaving out important definitions for terms like “consulting services” can lead to problems down the line.
- Not researching the proper venue, law, and forum for your client's best chance at winning a contract dispute is a mistake.
- Utilizing Microsoft Word's “track changes” is not a good option when negotiating a contract's terms with the other party's attorney.
- Leave sufficient time to review the changes, including enough time for revisions.
- Take the time to personally review all contracts and ask questions if you don't understand something.
- Standardize the method of managing modifications to the contract.
- Ensure it is clear and documented as to what version of the contract was sent to each party.
If you need help with drafting contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.