Quality commercial contracts aren't achieved by luck. It's not magic. And it's not random. There's a science behind it. A recipe. A formula even.
In commercial contracts, the overarching goal is to clarify the rights and obligations of both parties --- not confuse them.
In cleaning up any agreement, always assume that others will eventually need to read the contract for any number of reasons, such as:
Comply with performance or payment obligations.
Exercise default remedies.
Understand the agreement's term and termination provisions.
Prepare amendments to the contract.
Provide additional supplements to the agreement.
"A well-drafted contract is understandable by the employee who inherited it 5 years after it was struck and knew nothing of the initial negotiations."
--- CRAIG KAISER, HOUSTON BUSINESS ATTORNEY
When reviewing a contract or a document presented by the other party, the following are some best practices.
4 Contract Drafting Strategies for Success
1. BE CLEAR AND CONCISE
Fix clear or confusing language.
Correct internal inconsistencies.
2. OBSERVE POTENTIAL RED FLAGS
As a general rule, if you cannot understand a sentence after reading it twice or it is subject to more than one reasonable interpretation, flag it. If someone can explain it, require edits consistent with the explanation. If it cannot be explained, strike it.
Avoid drafting unnecessarily long documents that can be confusing, increasing the likelihood of internal inconsistencies and errors.
While non-lawyers need to be cautious when editing legal "boilerplate" contracts, removing wholly irrelevant terms from a bloated template always makes for a more readable document.
In general, it is reasonable to take a run at carving back overly-expansive, one-sided legalese written purely for the other party's benefit.
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3. BE DETAILED AND COMPLETE
In addition to being clear and concise, contracts should be complete.
Understanding the typical contract structure helps to quickly assess how well a document addresses vital issues, such as:
Is it clear what both parties intend to accomplish?
Does the agreement spell out what should happen if either party fails to perform?
Are mutual obligations outlined sufficiently?
How and when can the contract be terminated?
What happens when the contract is terminated?
Which parts of the contract survive termination?
How are disputes resolved?
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"Bad contracts can read well and appear to make sense, especially if you have a blind spot to what is missing."
--- CRAIG KAISER, HOUSTON BUSINESS ATTORNEY
4. UNDERSTAND THE AGREEMENT
Depending on your role, whether it is limited to editing or drafting of the contract or participating in the business discussions to be covered in the contract, it is imperative to get as much background information as possible.
You will want to know the who, what, where, when, why, how, how much --- and a whole lot of "what ifs" to establish a proper foundation for your review and edits.
If possible, attend as many key meetings or conference calls as you can.
Requests or questions that might be helpful to know could include the following:
How well are negotiations going?
Explain the logic and importance of the transaction.
Are there any concerns about the transaction or parties in the deal?
What are the anticipated implementation processes?
Were any other alternatives considered?
What are the most critical potential challenges?
How are intellectual property rights addressed?
How are disputes resolved?
Carefully reading and analyzing a contract is challenging and requires energy, focus, discipline, and talent. Bad contracts can read well and appear to make sense, especially if you have a blind spot to what is missing. A well-drafted contract is understandable by the employee who inherited it 5 years after it was struck and knew nothing of the initial negotiations.
If you are new to contract drafting, you may feel awkward about asking a lot of questions. But silently accepting terms you do not understand carries much more significant risks. It is better to be guarded than to assume the other party knows what they are doing or that they care about your interests.
We made it easy to get a basic understanding of mergers and acquisitions. Our comprehensive guide will help you.
Hiring some to be an inside counsel can be costly and unaffordable. General Counsel Services offers an alternative.
Top 20 Reasons Startups Fail --- Yes, Legal Challenges is one of the top 20 reasons.
6 reasons we should protect intellectual property.