Practice Pointers for Preparing Contracts

Companies have discovered that having a competent business attorney prepare comprehensive and understandable contracts is critical to avoiding subsequent disputes and litigation.

Whether your corporation works with employment contracts, sales contracts, equipment leases, commercial real estate leases or any other type of contract, these time-proven suggestions will help you draft a contract that is practical, understandable and effective.

1. A good contract should anticipate all possible outcomes so every issue is covered no matter what happens in the future. Discuss with your client the best case and worse case scenarios and develop an exit strategy. This forces your client to consider the possibility of an unpleasant or negative result, which he or she might not have contemplated.

2. Make certain your client understands the difference between a contract and a letter of intent. Clients are often eager to demonstrate their good faith by signing a letter of intent. This letter should clearly state that it is simply an outline of terms to be discussed and not a contract.

3. Call your contract a “Contract.” The titles “proposal” and “letter of intent” have different legal meanings than “contract.” And, not surprisingly, courts interpret them differently. If you intend this document to be a legally binding contract, use the word “Contract” in the title.

4. Put the date of the agreement at the beginning of the document. This makes it easy to find. Also, the date can then be used as a reference point in other correspondence, such as the “Employment Contract Dated January 4, 1997.”

5. Include the correct legal names of the parties in the first paragraph. This seems obvious, yet the identification of the parties is a common problem in contracts. For individuals, include first names, middle names or initials, last names, and any other notations, such as Jr. or Sr. Also, include any titles that are used as part of a name, such as M.D., Esq., D.V.M., and so forth. For corporations, check the secretary of state records to make sure the name is complete and accurate.

6. Identify the parties consistently throughout the contract. For example, Francis P. Albertson should be referred to as “Albertson.”

7. Do not identify the parties to a contract with a name that has legal significance unless the person is actually what the name denotes, such as employer, contractor or agent. Even then, you should also describe the scope of the person's authority and duties.

8. Describe the parties and purpose of the contract in recitals near the beginning of the contract. Recitals are the “whereas” clauses that are often used to briefly explain who the parties are and why they are signing a contract. In the first paragraph of the body of the contract, incorporate the recitals by reference and state that they are true and correct. This avoids a future dispute about whether the recitals are a legally binding part of the agreement.

9. Create a checklist of all the terms and conditions you want to include in the contract. Then, as you draft the contract, check off each term and condition as you incorporate it in the contract.

10. Outline paragraph headings in logical order. This helps the content flow from one subject to the next. Group related subjects in the same or contiguous paragraphs.

11. Keep sentences short. Short sentences are easier to understand than long sentences.

12. Write numbers in both words and numerals to reduce the chance for error. Twenty (20).

13. Write in active voice. Active verbs are more vivid and easier to understand than passive verbs. Active voice results in crisp, clear writing.

14. Write clearly and say exactly what you mean. Use words a layperson would understand. A clearly written contract is less likely to be subsequently breached by one of the parties due to a misunderstanding or issue concerning the interpretation.

15. Use common words with common meanings. Contracts are not the place to practice creative writing. Colorful words that provoke reflection may not be understood by the parties or the judge or jury. Make sure your writing is direct and precise. Choose words the parties will easily understand.

16. Avoid words that are often confused. Remember Dunham's law: Anything that can be misunderstood will be misunderstood. You are asking for trouble if you use words such as “Mortgagor” and “Mortgagee,” or “Lessor” and “Lessee.” Instead, use “Lender” and “Borrower,” and “Landlord” and “Tenant.”

17. Avoid words with double meanings. Good examples are words beginning in “bi” and “semi.” To many people, “biweekly” means twice a week; to others, it means every other week. The same is true for “bimonthly” and “biannually.” And who can speculate what “semimonthly” means?

18. Avoid single adjectives that modify compound nouns. For example, “This contract covers only 1997 cars and trucks.” Does this mean 1997 cars and all trucks? Or only 1997 cars and 1997 trucks? If you mean the latter, write the modifier (1997) in front of both cars and trucks: “This contract covers only 1997 cars and 1997 trucks.” If you want the modifier to apply only to cars, put it at the end of the list and put the modifier immediately before it: “This contract covers only trucks and 1997 cars.”

19. Discuss a subject only once. If you say it clearly the first time, you have no need to repeat it in a different form. Repetition in contracts leads to ambiguity. The first way it sounds as if you mean this, but the second way gives it a slightly different meaning and lends confusion to the interpretation of the contract.

20. Include an example if it will help clarify your point. Give an example of how a concept or formula would be treated. Make sure that you consider all possible meanings and that your example is accurate and consistent with the concept.

21. Carefully define parameters. When you use the word “herein,” such as “wherever used herein,” do you mean everywhere in this paragraph or everywhere in this contract? Be specific. When you write “including,” consider whether you should add “but not limited to.” Do you want your list to be all-inclusive or merely an example?

22. Use consistent references. If you are writing a sales contract that refers to “goods,” don't alternate by calling them “items” or “products.” Consistency is key to avoiding subsequent misunderstandings.

23. Use consistent grammar. Whatever style you use, maintain that style throughout the contract. Pay special attention to variations in style, such as where you put ending quotation marks and whether you place commas after years and states.

24. Don't rely on grammar for your interpretation of the contract. The judge and jury may have learned different rules of grammar from those you learned. Don't depend on a comma here or a semicolon there to define your position in the contract. Make sure your rights and obligations are clear regardless of which rules the judge or jury learned.

25. Define words at first usage. Your contract will be easier to follow if you define terms and concepts at the time they first appear in your contract, rather than in a special definition section of the contract.

26. Define words with special meanings by capitalizing them and putting them in quotes. For example: Where used in this contract, the word “Goods” shall mean the products that Buyer has agreed to buy from Seller under the contract.

27. Explain technical terms. The judge and jury probably will not understand the technical terms and trade jargon used by the parties. Make sure you explain technical terms and jargon within the contract itself or incorporate into the contract a recognized authority to explain technical terms.

28. Run the contract through your computer's spelling and grammar checker.

29. Ask your secretary and paralegal to read the contract. A second and third set of eyes can often find inconsistencies and confusing areas that you missed when drafting.

30. Ask your client to read it. Inviting your client into the proofreading process helps assure that the contract remains consistent with your client’s wishes.

31. Stamp “Draft (date and time)” on the contract. This may be the first of many drafts, so number and date all drafts at the top of the first page. Also, write “DRAFT” across each page so your client does not mistakenly sign the draft rather than waiting for the final version.

32. Save each version of the contract on disk. Name the current version as “contract.” Then save it again as “contract.dr1.” Each time you make changes, create a new draft and name it “contract.dr2,” “contract.dr3,” and so forth. By saving each draft version, you can easily compare one version with the next and show your client the changes that were made.

33. Print the contract on 24-pound bond paper. This heavier bond paper helps distinguish the original from copies that are usually made on 20-pound paper. If pages are changed, reprint the document on the same paper to avoid the claim that pages were substituted after the contract was signed.

34. Have the parties initial each page of the contract to avoid the claim that pages were substituted after the contract was signed.

35. Sign the contract in blue ink so you can easily distinguish the signed original from photocopies.

36. Include blank lines below the names of parties and witnesses for their printed names and addresses. This makes it easier to find the witnesses if the contract is contested.

37. Include the corporation name and make sure authorized corporate officer(s) sign on behalf of the corporation so they avoid personal liability.

38. Add a notary acknowledgment that complies with the law.

39. Include an arbitration provision so any dispute, controversy or claim arising out of, or related to, the contract is subject to arbitration, thus avoiding protracted litigation in the courts.

40. Include a choice of law provision so the parties agree which law governs concerning the interpretation, construction and enforcement of the contract, regardless of where it is to be performed.

41. Include a venue provision so if a dispute arises, the parties know the jurisdiction to institute the litigation or arbitration, if you include an arbitration clause.

42. The contract should address if it is assignable, and if so, under what terms or conditions, if any.

43. The contract should contain a no waiver provision that addresses if any party fails to, or elects not to, enforce any right or remedy, it may be entitled to under the contract or by law, such non-action shall not be construed as a waiver as to any continued or future acts.

44. The contract should contain a provision that the contract and any exhibits or addendums thereto constitute the entire contract between the parties superseding any prior oral or written agreements, understanding or representations.

45. The contract should require that any amendments to the contract be in writing and signed by all parties.

46. Include an attorneys’ fee clause that clearly defines “prevailing party” and includes fees and costs incurred whether by judgment or settlement or in the enforcement or collection and include fees and costs incurred as a result of appeals.

47. Include a notice provision that provides for various forms of delivery; i.e., fax, courier, messenger, registered, certified, or express mail and define when notice shall be deemed delivered. Also, provide for a procedure for a party to the contract to change his or her address.

48. Include a provision regarding construction of the contract. State that the parties have been represented by legal counsel or have forgone such right; and therefore, the parties agree that the contract should not be construed against the party who is more responsible for preparing the contract. Also include that the titles or heads used in the contract are for convenience and ease of reference and shall not effect the interpretation or construction of the contract.



Provided as an educational service by John Raymond Dunham, III, Esq..

This publication is intended to serve you. If you would like certain topics covered, or have any questions or comments, you are invited to contact Mr. Dunham at: 941.951.1800, Ext. 250, Facsimile: 941.366.1603, E-Mail: jrd@jrdlaw.com, Web site: www.jrdlaw.com or write him at LUTZ, BOBO, TELFAIR, DUNHAM & GABEL, Two North Tamiami Trail, Sarasota, FL 34236.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered and report on issues and developments in the law. It is not intended as legal advice, and should not be relied upon without consulting an attorney.