Identify the primary and secondary readers of the contract. Primary readers are the parties to the contract; secondary readers include anyone else who might read the contract. To illustrate, the primary readers of a residential lease are the landlord and the tenant. Secondary readers might include, potential subtenants, judges interpreting the lease because of a litigated dispute or a forcible eviction, and service providers determining who is responsible for payment.
The drafter must consider whether special explanations may be needed for technical terms or concepts or to avoid misconceptions.
Organize the material
Most contracts contain a title, an introduction, recitals, definitions, operative provisions, declarations, a closing, and attachments. The drafter should consider each part of the contract to be drafted, consciously rejecting a segment rather than inadvertently omitting it.
Title
The contract must include a title that accurately expresses the nature of the contract.
Introduction
A contract should begin with an introduction that identifies the parties to the agreement, as well as the nature of the agreement.
The introduction will include essential information of the party names or special legal status, such as a corporation or limited liability corporation.
The introduction should be short; specific terms of the agreement belong elsewhere in the contract.
Recitals
This section of the contract might also be called Premises. Its purpose is to state information that forms the foundation or background for the contract.
Recitals reflect what was true before the contract existed, not what the parties agree to do after the contract.
To avoid overdoing the recitals, the drafter should exclude any recital for which he or she cannot identify a purpose for including. Appropriate purposes for recitals include to clarify intent, such as the reasons why the parties want the contract; to resolve problems of negotiation, such as facts that would support arms-length negotiations; to add to consideration, such as when the consideration involves more than money or when the value of the consideration may not be readily apparent; or to bolster the importance of conditions in the contract, such as the reason why time is of the essence to one of parties.
A party to a contract may not have any remedy if a representation appears in the recitals and is not true. Likewise, an agreement (such as a definition) may not be enforceable when it is not within the operative provisions of the contract.
Avoid the use of ‘whereas’: While recitals are traditionally introduced with this term, the term is legalese that does not add meaning to the recitals. Simply numbering each recital will eliminate the need for this introductory word.
Definitions
Definitions can appear at the beginning of the contract or where the word first appears. Traditionally, drafters have placed definitions at the beginning of the contract in a definition section. However, this format can be awkward when referring to definitions in a lengthy document or when the definition section becomes quite long.
Modern drafters tend to place the definition where the word first appears. However, this also can be awkward when the word appears throughout a document, because the reader may have difficulty finding the original definition.
The better rule puts definitions at the beginning of the contract if the term appears in multiple sections of the document and puts the definition where the term first appears if the term appears in only that one part.
Definitions should conform to generally accepted drafting conventions. For example:
As a drafter you should use consistent terminology throughout after defining a term. In other words, the drafter should always use the same word or phrase for the same concept unless a different meaning is intended.
In addition you should use definitions to define terms, rather than to include other substantive information. Definitions that are more than one sentence may violate this rule.
Definitions ought to be drafted using present tense. Since a contract will operate indefinitely, definitions should read so that they express the current state and so that apply in future.
Definitions must appear prior to or contemporaneous with the first use of the defined term.
Definitions in the definition section must be in alphabetical order.
Operative provisions
The operative provisions of a contract are those that establish the performance the agreement requires, the consideration for that performance, and the terms under which the agreement will operate.
Operative provisions are organized most effectively when the most significant provisions are at the beginning of the document and the administrative (or housekeeping) provisions, such as declarations of private law, are at the end. In addition, similar topics should be grouped together and identified with appropriate headings.
The divisions ought to make the contract easy to use as a reference document.
When drafting a contract you must provide each division with an appropriate heading. The headings ought to inform the reader of the topic of the division.
Each heading should be sufficiently general to cover all the contents of the division and sufficiently specific to avoid covering provisions covered elsewhere.
The headings should be stylistically consistent.
Each heading should be numbered or lettered using a consistent scheme.
You should organise the divisions in a logical manner. For example, closely related provisions ought to be placed together, more important provisions before the less important provisions and general rules before exceptions.
Make sure not to forget the following provisions:
Force majeure provision
A force majeure provision determines what happens when performance becomes impracticable because of events beyond the parties’ control.
Merger provision
A merger provision clarifies what constitutes the agreement and the enforceability of provisions not included.
Choice of law provision
A choice of law provision states what law will apply in the event of a dispute. Beware that the choice of law provision may be mandated by international treaties or conventions.
Assignment and delegation provision
A provision may state whether the parties may assign their rights under the contract or delegate their duties. For example: ‘Neither party may assign any right or interest in this contract without the written permission of the other party.’ This clause is meant to prohibit assignment of rights but not delegation of duties.
Modification provision
A modification provision states how the parties may modify the contract.
Severability provision
A severability provision states whether the parties can enforce remaining provisions if one or more provisions is unenforceable.
NOTE:
If a contract includes a key provision that is unenforceable, the parties may not want to proceed under the contract even if the unenforceable provision does not go to the essence of the contract.
A Headings provision
A headings provision states whether the headings are a substantive part of the contract. For example: ‘The headings in this agreement are for reference only and do not affect the interpretation of any term or condition in the agreement.’
A limitation of actions provision
A limitation of actions provision states in what period a suit must be brought or what procedure to follow before filing a lawsuit.
An attorney fee provision
An attorney fee provision allocates responsibility for attorney fees in the event of a dispute.
Dispute resolution provisions
Dispute resolution provisions state how to resolve a dispute without litigating. To avoid the expense and inconvenience of litigation, modern contracts commonly include provisions for resolving disputes informally or as an alternative to litigation. For example, an informal dispute resolution provision might provide that the parties meet and discuss any dispute within a short period of time (such as ten days) after notice of the dispute.
An alternative dispute resolution provision might provide that the parties mediate their dispute before a mutually acceptable mediator prior to litigation or it might require that the parties arbitrate their dispute before an arbitrator whose decision will bind the parties.
Signature
A person signing for an entity, such as a corporation, partnership, or trust, may need to disclose its relationship to the entity, such as a title or capacity.
The contract ought to include a signature line for the parties signing the contract. The name of each person signing the agreement should be typed or printed under the signature line.
The title or capacity of each person signing an agreement should be included to confirm that the person has the authority to sign. The drafter also may want to specially verify that the person signing the contract has representative power.
Each signature may have a different date. In addition, the signature dates may be different from the agreement date in the introduction and the effective date of the contract.
Attachments
If there are attachments incorporated by reference somewhere in the contract, the provisions of those attachments ought to be incorporated by reference consistent with the provisions of the contract.
As a drafter you must distinguish between attachments that are binding and attachments that are only for reference.