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Contract drafting

"In-house counsel need to think like a litigator when drafting contracts Burns & Levinson LLP Shepard Davidson USA April 23 2013 Author page Memorializing an agreement in a written contract serves two primary purposes. First and foremost, a written contract should clearly set out the deal terms so that there is little or no chance of a misunderstanding as to what the parties rights and obligations are. Further, to be sure that they get the deal terms right, in -house counsel often turn to business people involved in the deal because they are the experts on the deal terms. The second reason to have a written contract is to set out the Rules of Engagement that will apply if a dispute arises between the parties. Such Rules, on which I have written in other posts, include choice of law provisions, forum selection clauses, liquidated damages provisions, and arbitration clauses, just to name a few. Surprisingly, however, and in contrast to in-house counsels willingness to consult with business people about the deal terms in a contract, in-house counsel often are reluctant to consult with experts on the Rules of Engagement, i.e., experienced litigators. Whether the reason for this is a psychological aversion to placing too much emphasis on what might go wrong with a deal before it is fully in place, a concern for legal fees, or some other reason, the fact remains that even a slight variation in one or more dispute-related clauses in a contract could have an enormous impact should a dispute ever arise. I suggest that the benefits of consulting with an experienced litigator in connection with almost any contract will far outweigh the cost. Indeed, in many instances a litigator will not have to spend very much time issue-spotting and/or advising on any dispute-related provisions. If in-house counsel really do not want to do this, however, they at least need to think like a litigator when negotiating and drafting such provisions. This involves trying to imagine as many scenarios as you can involving the deal falling apart and/or how one party or the other could breach its obligations under the contract. Among other things, doing this might reveal that: (i) it is advantageous for the law governing the contract to be that of the state where the other company resides; (ii) there is a big risk to your company if mediation is required before a lawsuit can be filed; or (iii) it is worth agreeing to the other partys desire to have a liquidated damages provision because a court never would enforce what has been proposed. Thinking like a litigator does not mean: (i) stubbornly holding out for every little advantage possible; (ii) refusing to compromise; or (iii) building into the contract remedies for every conceivable type of breach, no matter how unlikely. Negotiating favorable Rules of Engagement, just like negotiating favorable deal terms, always requires balancing the risk of not having your preferred wording with practical and business realities, as well as your companys desire/need to ensure that a

business deal is consummated in a formal contract. Lets face it, the percentage of contracts that ultimately end up with some sort of dispute that has to be resolved through litigation or some other formal process is far from de minimus. Thus, while in-house counsel may not enjoy thinking like a litigator when drafting contracts, doing so can play a critical role in placing your company in a much stronger position if a dispute does.

Proper Contract Drafting


Contracts are a part of everyday life for both personal and business reasons. Some of these contracts are written, while others are oral. In every case, it is important that the terms of the contract are fairly negotiated, properly drafted, and reviewed to ensure the contract meets the intentions of the parties. A drafter should be able to translate the business deal into contract concepts.

Contract Drafting emphasizes the nexus between the business deal and the contract. A drafter must understand the business deal; know how to use the contract concepts to reflect the parties' deal accurately; be able to draft and recognize nuances in language that change the deal and knows how to add value to a deal by discerning and resolving business issues.

Many parties use form contracts as a model when drafting their own contracts. When drafting the contract, it is important that each party knows exactly what is expected of them. Thus, if there are any words that could be misconstrued, or any terms that are ambiguous, define them within the contract. When drafting a contract, clarifying the terms and duties should be the goal.

While negotiating contracts, be aware of the following: Make certain you are comfortable with your duties and obligations. Negotiate for a remedy within the contract if there is a breach by either party. Make your intentions, requirements and expectations of the other party clear at the beginning of negotiations.

Many parties use legal words and language (legalese) when drafting contracts. This may, however, make the obligations and terms of the contract confusing. Thus, use regular language to insure that both parties understand what the contract says and means.

Before signing a contract, read it. In reviewing the contract, make certain you understand what your stated obligations are under the contract. If you are uncertain as to your duties, and you sign the contract, you may be liable for breaching the contract if you do.

If you are entering a contractual agreement, it is always an intelligent practice to have a legal professional review any contract terms to insure that your needs will be met and that you will not obligate yourself unexpectedly.

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