Principles of Effective Contract Drafting Endi Piper
Why Study Contract Drafting • Contract negotiation and drafting • is an exercise in selling. • Selling the parties on executing the • documents, now; • 2. Selling the parties on voluntary • performance, after execution; and • 3. Selling a court or other entity on • performance after voluntary • performance has ceased.
Purpose of a Contract • Contracts attempt to articulate: • The rights and obligations of the • parties; • Provisions for events or contingencies • that while not expected, may occur. • Provisions that avoid any • undesired default provisions of any • applicable law. • Remedies and means of enforcing • or avoiding the rights and • obligations.
Role of the Attorney • Counselor to client • Advocate • Planner • Negotiator
Important Principles of Contract Law • 1. Mutual assent – intent to contract. There must be a “meeting of the minds.” • 2. Offer and acceptance. • 3. Consideration – bargain for exchange. • 4. Conditions – precedent and subsequent. • 5. Representations, warranties, covenants and conditions. • 6. Conclusion of a contract – expiration, termination, rescission.
The Deal Time Line • Most transactions follow a standard time line or chain of events. • General rule of thumb is that simple transactions take a shorter • period of time than longer transactions.
The Goal of Drafting – Precise Documents Four elements of precision: • Accuracy. • Completeness. • Exactness. • Able to withstand hostile, critical • review.
The Form of Transactional Documents • Title • Introductory paragraph • Preambles/Recitals • Definitions or defined terms • Core substantive provisions • Representations, warranties, • covenants, indemnities, • guarantees, releases • Events of default and remedies • Boilerplate • Signature block • Exhibits and attachments
Characteristics of Plain English Drafting • 1. Short sentences. • Definitive, concrete, everyday • language. • 3. Use the “active” voice. • 4. Use tabular presentation. • Separate paragraphs and sections • with headings for individual or • different concepts. • Avoid the use of “legal jargon,” • Latin or other foreign terms. • 7. Avoid the use of double negatives.
The Drafting Process • Investigate the facts. • Investigate applicable law as needed. • Develop a contact list and task schedule by deadlines and • responsible party. • Prepare initial drafts, use precedents and templates where • appropriate. • Circulate drafts for comments and revise as necessary. • Negotiate and memorialize the final definitive documents. • Execution of documents. • Closing. • Post Closing adjustments and clean-up.
Who Drafts the Contract • Contract usually drafted by • the party with the most • leverage • Can control which issues are • addressed • Can control the pace of the • transaction
Drafting the Contract Involves… • Determining what the parties agreed to • Putting those terms into • words
Talk to your Client • What is the deal? • Are there any relevant documents? • Letters or correspondence? • Financial statements? Etc. • Ask detailed questions about • conversations with the other party • Possibly have an initial conversation • with the other party…what do they • believe are the primary deal points?
Use Precedent? Why or Why Not? • WHY? • Saves Time • Contains Standard Terms • WHY NOT? • Hard to find perfect match • Precedent may be poorly drafted • May not contain necessary Standard • Terms • **Make sure the precedent was the first • draft and does not contain negotiated • terms
Use Precedent or Draft from Scratch? • Depends On: • 1. Type of Transaction • 2. Experience of the Attorney • How much time Attorney • has to draft
Prepare the First Draft • Draft based on information you have • Use precedent or draft from scratch • Discuss all questions/issues with client • while drafting to make sure draft mirrors • deal points • Re-draft after speaking with client • Send to client to review and possibly • redraft again before sending to other • party • Always send contract to other party • “subject to review of client”
Reviewing First Draft if From the Other Party • Review and have comments/questions • for your client • Review entire contract with Client • Prepare red lined mark-up for other • party • Include reasons for changes if • necessary • Review with other party in meeting or • via phone
Exercise #2: Halle Berry Independent Contractor – Use of Precedent Vukani wants Halle Berry to provide marketing services in the United States. You represent Halle Berry. In groups of 3, go through the precedent and make a list of what you would change prior to sending to Vukani. We will then discuss your proposed changes in each paragraph as a group.