Once the parties have settled on the fundamental terms of a contract, the process of actually drafting the contract takes place. It is generally advantageous to be the party creating the first draft of the contract. While the drafting may be time consuming, the party that drafts the contract has the initiative in crafting the language and terms of the contract in a manner that is best suited to the parties’ needs. In this way, the drafting party ensures that the contract starts in a form that is known, specifically related to its intent, and beneficial to its position. In some situations, being the revising or reviewing party can actually take more time as the familiarity with the document is limited.
An extremely important part of drafting the contract is taking precautions to make the contract clear and understandable. The parties need to recognize that the contract will be the document to which they refer when there is a dispute or disagreement, and the clarity of the document will be essential to assisting the parties in working together. Each of the provisions must work together and be consistent with each other to minimize misunderstandings. Parties should make sure they understand the agreement and can navigate it, and should take an active role in working with counsel to make sure they have adequate explanations of the terms and how the contract will accomplish their purposes.
As some general guidelines for how a contract should be structured, the following organizational principles generally apply:
- General provisions should be set out before more specific provisions;
- Major provisions, the important items, should be set out before minor or less important terms;
- Generally applicable rules should be stated in detail before any exceptions are described, and exceptions should be narrowly tailored;
- Technical or housekeeping provisions should be generally placed at the end of the contract, but that does not mean they should be taken for granted; and,
- The contract as a whole should be reviewed in light of generally applicable principles of contract constructions to make sure that the intent of the parties will be clear.
Next up…Principles for Review of a Contract