Parts of a Contract Drafting: Everything You Need to Know
The parts of a contract drafting stage is an important aspect of creating a legal contract.4 min read
The parts of a contract drafting stage is an important aspect of creating a legal contract. When you draft the necessary components, you can eliminate the risk of issues in the future of the terms of the agreement.
Guide to Contract Drafting
In the life cycle of a contract, the first stage is the drafting phase. Drafting a contract is one of the most critical elements of this life cycle, as it provides a foundation for which the remainder of the document is built. It is essential to use precision and clarity when drafting a contract, as this ensures the needs of all involved parties are met. Additionally, a well-written contract can provide a stronger layer of legal protection when you're engaging in a business deal.
Similar to other legal documents, a contract should follow a basic format. This format includes several key contract parts. Although contracts do share some similarities in the components they contain, the styles of contracts vary between industries. The amount of detail and length of a contract will also vary, depending on the transaction and its complexity.
All contracts have at least several common parts:
- Frame: The formal and legal language used to begin the contract and in the signature portion at the end of the agreement.
- Definitions: Words that need to be defined within the contract.
- Business: Outlining the rights and responsibilities of all involved parties.
- Termination: Information about how the contractual relationship can or will end.
- General Provisions: May also be referred to as the boilerplate and includes statements of the policies that govern the agreement's terms.
Unlike contract parts, the contractual concepts of a contract include the agreement's operative language. These words create contractual obligations and rights that become the basis for authority and liability. The concepts also outline any policies that will regulate the contractual agreement and the relationship between the involved parties.
Associating contracts with verbs is a way to understand better the idea of the concepts that must be included. As a sentence needs to have a verb, each sentence within a contract should contain a contractual concept. Examples of contractual concepts include:
- Declarations, which set the policy for the relationship and may be used to define certain words and terms used in the agreement. A declaration does not create any liability or obligation. You can spot a declaration because it will use a present tense of a verb. For example, a declaration might read, “The purchase price is set at $20,000.” This declaration doesn't obligate either involved party to sell or purchase the item outlined in the agreement. Creating an obligation requires the creation of a covenant.
- Covenant, which obligates a party either to refrain from doing or to do a certain action. The covenant will also establish a right to the obligated party's performance based on that obligation. Covenants are promises and are easy to spot because they include “shall,” “must,” or “will.” It is recommended to use "shall," as it signals an unambiguous obligation, rather than signaling conditions or futurity.
- Representations, which are facts on which the parties can rely, including both past and present facts.
- Warranty, which is a promise that a fact being presented is true. A warranty differs from a representation in that it can extend into the future. A representation and a warranty together may create liability for the involved party if a fact is not warranted and represented.
- Discretionary authority, which grants either party the discretion to take a certain action or refrain from taking a certain action, but it doesn't create an obligation for that party to do anything. The use of the word “may” signifies the lack of obligation in this section.
- Condition, which outlines an event that isn't certain to occur but must occur before the terms under the performance section come due. Conditions fall under two main categories, which are implied and express. Express conditions are clearly outlined in the agreement, while implied are read by the court into the agreement. A condition must be attached to an obligation and cannot appear in isolation. The language used to signify a condition varies between contracts. Failure to meet a condition doesn't immediately create a right to damages or liability, as a condition cannot be breached. If one involved party fails to meet a condition, this could trigger an obligation, but it would not create an obligation. In a contract, you can usually spot a condition because it contains the words “in the event of” or “if.”
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