elements of a contract to be considered in drafting

Legal Document Preparation Class 2 Slide 1

Elements of a Contract to be Considered in Drafting

• The writing should clearly indicate the presence of an

offer and acceptance

• The writing should state the consideration for the

agreement

• The consideration on both sides must consist of legal

subject matter

• All parties must have the capacity to contract

• It must be determined if the contract falls within the

statute of frauds and, if so, whether it is satisfied


Preliminary Considerations in Drafting a Contract

• All parties must be identified

• Whether each party owns the property interests that will

allow him/her to fulfill the contract must be determined

– E.g., does the party own the land he’s agreeing to sell?

• Each party should have the chance to consult with a

lawyer independent of the other party before a contract

is executed

• The applicable state and federal statutes must be

reviewed to make sure the contract is never voided for

illegal subject matter


Preliminary Considerations in Drafting a Contract 2

• Make sure no defenses exist to the enforcement of the

contract, such as:

– Conflicts of interest by the attorneys involved

– Mistake (mutual or unilateral)

• It should be made sure that each party understands the

nature of the agreement and all the important terms

– Fraud/ Misrepresentation

– Duress or undue influence

• It should be determined whether important clauses

should be phrased as conditions or simply clauses in the

agreement


Parts and Clauses of the Contract 1

• Title

– This should reflect the nature of the contract, althoughkeep in mind that this will not be binding on anyone

• Opening Paragraph

– The can state recitals and the purpose of the agreement,although it will not be binding if contradicted later in theagreement unless is specifically says that it should be

• Parties

– The names of both parties and their addresses

• In addition to the parties giving up consideration, if there is anintended third party beneficiary, that party should be namedas well, so as to increase the chance that the third partybeneficiary can enforce the contract



• Consideration

– Even if it’s obvious from the agreement what the

consideration is, it should still be clearly stated in the

contract

• Description of property or services to be rendered

– Make this as specific as possible!

• Duration of Agreement

– Without a term a contract ends when it is fulfilled or

perpetually; or for a “reasonable” time period if perpetual is

unreasonable.

• Payment or services to be provided



• Entirety of agreement

– This clause (not required) states that no other or oralagreement should be binding against this agreement

• This allows the parties to be secure in the knowledge thatthey have the entire picture on front of them

• Excuses for nonperformance

– The default rules are fairly harsh in this respect(impracticability is hard to come by; death of a party doesnot usually excuse performance, etc.), so it’s important toput his in if you don’t want the default rules

• Passage of title

– Many sellers want to keep title until it’s paid for…

QUIZ TIME!




• Risk of Loss

– Which party has the risk of loss during shipping, etc.

• Warranties

– This is especially important in sales of goods cases

– Without a warranty clause, certain warranties are implied,

especially under the UCC. Therefore, this clause can be

as important to disclaim warranty as it is to contains

express warranties

• Insurance and Bonds

– One or both sides are often given the responsibility to

insure the subject of the agreement



• Assignability of rights

– Contract rights are generally assignable unless statedotherwise, so if you don’t want the rights transferred to athird party, this is an important clause

• Subrogation

– This gives the rights of one party to another party withrespect to certain rights outside this agreement

• E.g., you give your doctor your rights to collect from yourhealth insurance company

• Indemnification

– When one party agrees to pay back another party in casethere are certain types of losses



• Accounting

– Here, you assign responsibility for formally account underthe agreement, if applicable

• Confession of Judgment

– This is rare, but can save the need for litigation

• Arbitration clause

• Assigning costs and attorneys fees if litigation isnecessary

• Liquidated Damages

– This assigns damages in case there’s a breach

• This cannot be a penalty clause- it must be a reasonableapproximation of what the actual damages would be


Parts and Clauses of the Contract 7• Notice

– This tells each party to where to send notice to the other

• Choice of Law (i.e., which state’s laws control)

– Big companies with a lot of contracts usually insist onthese so they can have lawyers who are expert in onestate’s laws only

• Severability

– In case one clause is unenforceable, the rest should beenforceable

• What is required for future modification or rescission

• What constitutes a breach of contract

• Whether the agreement can be executed in counterparts


Other Formal Requirements

• Often, you can have one original and the other party gets a copy.

However, in some types of contracts, each party will need an

original, so more than one original can be executed.

• Any other documents incorporated by reference should be attached

to the agreement (or copies of those docs)

• The following should usually also be done with a contract:

– Signed and dated by each party (with copy of powers if executed

by POA)

– Attestation, acknowledgment and notary (not required, but

usually a good idea)

– Filing with county clerk or other agency

• For certain types of agreements only, like many types of mortgage

and financing agreements

elements of a contract to be considered in drafting

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