Principles of Effective Contract Drafting Endi Piper

Overview

Why Study Contract Drafting Contract negotiation and drafting is an exercise in selling. Selling the parties on executing the documents, now; 2. Selling the parties on voluntary performance, after execution; and 3. Selling a court or other entity on performance after voluntary performance has ceased.

Purpose of a Contract Contracts attempt to articulate: The rights and obligations of the parties; Provisions for events or contingencies that while not expected, may occur. Provisions that avoid any undesired default provisions of any applicable law. Remedies and means of enforcing or avoiding the rights and obligations.

Role of the Attorney Counselor to client Advocate Planner Negotiator

Important Principles of Contract Law 1. Mutual assent – intent to contract. There must be a “meeting of the minds.” 2. Offer and acceptance. 3. Consideration – bargain for exchange. 4. Conditions – precedent and subsequent. 5. Representations, warranties, covenants and conditions. 6. Conclusion of a contract – expiration, termination, rescission.

Exercise #1 – Bobby Cool Rims and the Vintage 1954 Rolls Royce

The Deal Time Line Most transactions follow a standard time line or chain of events. General rule of thumb is that simple transactions take a shorter period of time than longer transactions.

The Goal of Drafting – Precise Documents Four elements of precision: Accuracy. Completeness. Exactness. Able to withstand hostile, critical review.

The Form of Transactional Documents Title Introductory paragraph Preambles/Recitals Definitions or defined terms Core substantive provisions Representations, warranties, covenants, indemnities, guarantees, releases Events of default and remedies Boilerplate Signature block Exhibits and attachments

Characteristics of Plain English Drafting 1. Short sentences. Definitive, concrete, everyday language. 3. Use the “active” voice. 4. Use tabular presentation. Separate paragraphs and sections with headings for individual or different concepts. Avoid the use of “legal jargon,” Latin or other foreign terms. 7. Avoid the use of double negatives.

The Drafting Process Investigate the facts. Investigate applicable law as needed. Develop a contact list and task schedule by deadlines and responsible party. Prepare initial drafts, use precedents and templates where appropriate. Circulate drafts for comments and revise as necessary. Negotiate and memorialize the final definitive documents. Execution of documents. Closing. Post Closing adjustments and clean-up.

Who Drafts the Contract Contract usually drafted by the party with the most leverage Can control which issues are addressed Can control the pace of the transaction

Drafting the Contract – Where to Start

Drafting the Contract Involves… Determining what the parties agreed to Putting those terms into words

Talk to your Client Are there any relevant documents? What is the deal? Are there any relevant documents? Letters or correspondence? Financial statements? Etc. Ask detailed questions about conversations with the other party Possibly have an initial conversation with the other party…what do they believe are the primary deal points?

Use of Precedent

Use Precedent? Why or Why Not? Saves Time Contains Standard Terms WHY NOT? Hard to find perfect match Precedent may be poorly drafted May not contain necessary Standard Terms **Make sure the precedent was the first draft and does not contain negotiated terms

Use Precedent or Draft from Scratch? Depends On: 1. Type of Transaction 2. Experience of the Attorney How much time Attorney has to draft

Prepare the First Draft Draft based on information you have Use precedent or draft from scratch Discuss all questions/issues with client while drafting to make sure draft mirrors deal points Re-draft after speaking with client Send to client to review and possibly redraft again before sending to other party Always send contract to other party “subject to review of client”

Reviewing First Draft if From the Other Party Review and have comments/questions for your client Review entire contract with Client Prepare red lined mark-up for other party Include reasons for changes if necessary Review with other party in meeting or via phone

Exercise #2: Halle Berry Independent Contractor – Use of Precedent Vukani wants Halle Berry to provide marketing services in the United States. You represent Halle Berry. In groups of 3, go through the precedent and make a list of what you would change prior to sending to Vukani. We will then discuss your proposed changes in each paragraph as a group.