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The art of drafting contracts

Filed under: People and society by Hari
Posted on Thu, Apr 5, 2012 at 10:27 IST (last updated: Sun, Apr 29, 2012 @ 07:35 IST)

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Contract As a lawyer, drafting contracts is one of those skills that becomes important in the context of corporate law. Not many courtroom lawyers pay much importance to drafting contracts or agreements, but undoubtedly contract drafting is a necessary skill in any lawyer's arsenal.

In my view, a good contract is not just one that establishes the duties and rights of each party, but also one that makes the business relationship absolutely clear. If a contract is incomplete in any aspect, it is a bad contract in my view. Clarity is important. Each clause of the contract should have a clear meaning, and as far as possible have only one meaning in the context. Usage of standard words is also important. Interchanging standard words and phrases with words that may mean something else in a difference context is to be avoided as much as possible. Sentences can be short and crisp, but explanations need to be given where meaning is not absolutely clear.

Some contracts also require standard clauses. A legal remedy clause is important, as is an arbitration clause. Note that any arbitration or legal remedy clause may survive the death of the contract: in other words, those clauses may be enforceable even after the parties end their contractual relationship. It is important because there is no guarantee that the relationship between the parties will always be cordial and comfortable. A time may arise when the parties may be at loggerheads with each other. A clear-cut legal remedy made out in the agreement will be of great benefit to the parties to the contract.

In my view, a lawyer's help is definitely needed to draft a good contract. While lay businessmen, particularly experienced ones, may well be aware of the terms and conditions that define a business agreement, but a contract is more than just an agreement. It is supposed to be a binding legal instrument that can be used by either party to it to enforce legal remedy or specific performance as the case may be against the other party. Without clauses that clearly spell out the duties and liabilities of each party, an agreement may not be enforceable as a contract. While huge amounts of money are at stake in any business deal, it may be wise to prepare a customized and formal written contract that defines the deal and relationship between the parties. Blindly copying and pasting of clauses even from a previous similar contract may lead to problems later. Every clause requires thought and care in construction.

In my view, a good contract should have the following elements:

A good contract also needs to be balanced, fair and conscionable in law. An unconscionable or extremely one-sided contract may be unenforcable in law. Again, a good contract need not necessarily cover each and every minor detail of the transaction to be concluded or relationship entered into between the parties. However, verbosity is not a sin, especially when the verbosity is aimed at clarifying rather than confusing.

In summary, while a good contract may not guarantee a trouble-free business deal or relationship, it must help in reducing any confusion and make each party's role in the contract as clear as possible.

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4 comment(s)

  1. All is well and good, but can you point to either a good contract and explain why it is good, or point to a bad one (that a lay person would consider fine) and pick it apart?

    It's a bit hard to relate when not in the law profession.

    Comment by Dion Moult (visitor) on Mon, Apr 9, 2012 @ 06:29 IST #
  2. Hi Dion. At present I don't have any contract that I can share. But I plan to illustrate an example with a model contract since you asked -- whenever I get the time.

    Comment by Hari (blog owner) on Mon, Apr 9, 2012 @ 08:43 IST #
  3. For example, there are a lot of freelancers and people who run sites which deal with perhaps intellectual property or copyrighted material which have to write contracts, terms of service, privacy policies, and so on. Obviously not all of us are lucky to be able to hire a lawyer, but at least we can find some common potholes we can jump across.

    Comment by Dion Moult (visitor) on Sat, Apr 14, 2012 @ 20:51 IST #
  4. If you have any particular type of contract in mind, do post a link - contracts come in different varieties and scopes - and I'd probably use one of them as a model to illustrate some of the points.

    Comment by Hari (blog owner) on Sat, Apr 14, 2012 @ 21:12 IST #

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