Drafting Clear and Enforceable ContractsLegal Compliance Resource
May 17, 2013 — 1,325 views
Before entering into a business relationship, it is best to write a contract or agreement. But contract drafting needs careful consideration so that possible issues do not form the basis of a claim in court. You may go through enforceable contracts several times in the draft stage to avoid the errors of ambiguity and in-comprehensiveness.
General Principles Involved in Contract Drafting
Here are some general principles of contract drafting that must be taken into account before it is complete in all respects. Each party to the enforceable contracts must be identified along with their names and addresses, obligations, duties, as well as termination clause. In addition to these items inclusion of certain clauses with a clear description of the same will prove valuable. So, the termination clause must specify the conditions of termination and the notice period. The merger clause brings in further clarity to the entire agreement.
It is important to define all terms in the contract drafting stage so that the two parties are clear on the meaning of the terms, leaving no scope for misinterpretation. For instance, if the contractor is asked to deliver bi-weekly, does the term mean twice every week or every two weeks? When terms are defined, their exact meanings should be explained. Provisions regarding choice of forum, fees, and alternate dispute resolution should be identified in the contract.
Performance and Competition
While in the stage of contract drafting, the expectations of each party from the other must be crystal clear and expressed in greatest details. Commitments that are open-ended too must at least specify the fee to be provided for the number of hours. Enforceable contracts leave nothing for subjective interpretation. Similarly, the terms of payments including periodicity, penalties for delayed payments, and the other payment details must be specified.
A confidentiality provision is usually added in enforceable contracts in order to take care of competition. The confidentiality provision prohibits the other party from disseminating information provided in the course of work for any other purpose than the one specified in the contract. It should also be noted that in case of conflict between a state law and one or more provisions in the contract, it is the state law that prevails while the contract to that extent only becomes void.
Provisions for Enforcement
The enforceable contracts generally include an enforcement clause. The contract must specify who pays for the attorney’s fees, otherwise the fees cannot be recovered. Unless specified, the attorney’s fees are generally recovered by the prevailing party. Additionally, in case of dispute and eventual litigation, the contract must specify the legal jurisdiction applicable in case of litigation. If the parties are from two states, the party that is smaller will find it a financial burden having to fight a case hundreds or thousands of miles away. One way to resolve this debate is to state that the party that sues will file the case where the defendant is located.
While these details can be specified at the time of contract drafting, it is also better to explore other--cheaper options like arbitration and mediation. These options can be advantageous for smaller businesses as they are quick and cheap. Also, they have a higher settlement rates.