BEST CONTRACT DRAFTING PRACTICES
“A verbal contract isn't worth the paper it's written on”
- Samuel Goldwyn
Writing a contract is an art. It is a step by step process. It should be done
with great amount of care and caution. Drafting comes with huge
responsibility since everything that is important and related to the
agreement is dependent on the final written draft presented in the form of
7.1 WHAT TO INCLUDE?
Contractual terms are classified differently depending upon the context or
jurisdiction. Terms establish conditions precedent. English (but not
necessarily non-English) common law distinguishes between
important conditions and warranties, with a breach of a condition by one
party allowing the other to repudiate and be discharged while a warranty
allows for remedies and damages but not complete discharge. In a less
technical sense, however, a condition is a generic term and a warranty is a
1 Gillies P. (1988). Concise Contract Law, p. 105. Federation Press.
The points clearly intend to define the Every contract has some points
rights, liabilities and duties of each party which are the reasons for its
related to the contract. There are many existence. Each point deals with an
kinds of contract, and the subject matter for explicit feature related to the
subject matter of the contract.
each one of it differs, therefore there can be
no set format on which it can be based. Every contract depends on the
exact requirements of the parties. Every clause is tailor made to suit their
specific wants. But there are certain clauses which are there majorly in
almost every contract.
For the purpose of common clauses, a contract can be divided into three
Like any other important document, the
SECTION 1: PREAMBLE preamble is the most important section
of a contract. It is like an introduction
and gives a bird’s eye view of the whole contract. It tells about who are the
parties entering into the agreement and why are they doing so? It explains
the purpose and scope of the contract and includes some most important
details of it.
These are the conditions which both SECTION 2: TERMS OF THE
the parties agree to and have to CONTRACT
perform for successful completion of
the contract. Some of the common conditions which are found in almost
every contract are:
Ø NAMES OF THE PARTIES: Every contract has certain parties who
promise each other something. Thus, it becomes important to know
who they are to avoid any confusion. Therefore, the very first thing
that the contract should have is the names and full details, like
address, there job portfolio etc., of the contracting parties.
Ø CONDITIONS OF PERFORMANCE: This clause includes the
mandatory terms which the parties have to fulfil. Not fulfilment of
these terms would result in a breach of contract and the party at fault
can be sued in the court of law for non-performance or a breach of
contract. It also mentions the “time of essence” i.e. the time frame in
which the terms have to be fulfilled. The duty of performance under
many contracts is contingent upon the occurrence of a designated
condition or promise. A condition is an act or event, other than a
lapse of time, that affects a duty to render a promised performance
that is specified in a contract. A condition may be viewed as a
qualification placed upon a promise. A promise or duty is absolute
or unconditional when it does not depend on any external events.
Nothing but a lapse of time is necessary to make its performance
due. When the time for performance of an unconditional promise
arrives, immediate performance is due. A dependent or conditional
promise is not effective until the occurrence of some external event
that the parties have specified. An implied condition is one that the
parties should have reasonably comprehended to be part of the
contract because of its presence by implication.2
Ø LIABILITIES: Every contract gives certain rights to the parties. But
as it is known that every right comes with a duty. A duty to fulfil
their responsibility with honesty. This clause contains complete
details of the legal obligations of the parties that they have to comply
with to avoid any kind of action against them.
Ø JURISDICTION: In this clause the parties mutually submit
themselves to a particular jurisdiction. They agree on laws of a
specific state according to which there contract would be interpreted.
In the case of any dispute, which forum would be chosen is the main
object of this clause. To be enforceable, they should not be in
conflict with the general requirements of the law.
Ø REMEDIES FOR BREACH: This portion of the contract contains all
the remedies that the parties mutually agree to get at the time of a
proven violation or breach of contract. These can be compensation,
Ø LIMITATION CLAUSE: According to the law of the land, there is a
fixed period for filing of any case in the court of law. Therefore, this
clause mentions the time frame in which a lawsuit can be filed after
a breach of contract or any other violation.
Ø INTELLECTUAL PROPERTY CLAUSES: If the subject matter of
the contract contains anything that can be protected by intellectual
property law i.e. trademarks, copyrights, trade secrets or patents,
then the contract should have a clause wherein full details of the
subject-matter is given and the kind of intellectual property it is.
Since, violation of IP is a different dispute altogether and is dealt
with in completely different manner.
Ø CONFIDENTIALITY3: What is confidential, and what is not-
Ø INDEMNIFICATION CLAUSE4: These agreements indemnify
(release from liability) the other party in the event that losses or
expenses are incurred. These should be used with caution, as they
could limit the ability to recover damages for losses.
Ø DISPUTE RESOLUTION CLAUSE: ADR stands for Alternate
dispute resolution. It is a speedy and quasi-judicial process of
solving a dispute. If both the parties agree, then in the case of a
dispute it can be resolved through ADR methods like arbitration
rather than litigation.
Ø DETAILS OF PAYMENT: If the contract requires any payment to be
made by one party to the other, then this clause becomes important
as it will contain all the necessary details, like where, when, on the
fulfilment of which prerequisite condition etc., of the payment to be
Ø TERMINATION: If any party wants to cancel the contract at any
point of time then, they can do so under this clause. This clause
mentions all the situations under which a contract can be terminated
or cancelled and also if this option is opted for then the cost the
terminating has to pay to legally end the contract.
Ø SCOPE FOR REFORMATION: Reformation means rectification.
Therefore, if at any point of time there is any kind of time any party
feels that something is lacking in the contract or they want to add to
delete something or revise the contract, then this clause comes into
play and it can be done after proper discussion with the other party
Ø REPRESENTATIONS & WARRANTIES CLAUSE: This clause is
added to the agreement to ensure that the rights, duties and
obligations of parties under the contract are adequately captured.
Ø SURVIVABILITY CLAUSE: This clause is inserted into the
agreement to capture the intent of the parties as to which clauses
would survive the termination/expiry of the contract. Usually, the
clauses that survive the expiry/termination of the agreement are
Confidentiality clauses, IP clauses, representations and warranties
clause, indemnification clauses. The other clauses that the parties
would like to survive the expiry/termination of the agreement should
be expressly mentioned in the agreement.
This is the last section of the contract. The
SECTION 3: END parties to the contract put their signature here
which tells that they have properly read and
understood the contract and agree to each and every point and clause
mentioned in it.
7.2 CHECKLIST FOR PREPARING CONTRACTS
While writing the contract the writer should keep in mind following
• To start with it is good to make a complete outline structure of
the contract. The first step should be determining the scope of
the contract and how important is it?
• Simple English should be used. Avoid jargons.
• There should be clarity in writing. Be precise (accurate,
complete and, exact), specific, and focused.
• Sequence logically by a chronology of events.5
• Terms of contract should not be drafted vaguely. It should
appear to be free of ambiguity and uncertainty.
• Think from the reader’s point of view while writing the
Terms of contract should be reasonable and capable of performance.
It should not be an impossible act. To decide the possibility certain
question that would be helpful can be6:
Ø ARE ALL THE CONDITIONS POSSIBLE FOR YOUR
ORGANIZATION - I.E. CAN YOU CARRY THEM OUT AS
DESCRIBED IN THE CONTRACT? CAN YOU DO IT IN THE
TIME SPECIFIED, FOR INSTANCE?
Ø IS ANYTHING IN THE CONTRACT DANGEROUS TO THE
FUNCTIONING OR THE LIFE OF YOUR
ORGANIZATION? WILL IT COST YOU MONEY YOU DON'T
HAVE? DOES IT PUT YOU IN CONFLICT WITH THE
PRINCIPLES OF YOUR ORGANIZATION, OR REQUIRE YOU TO
USE A METHOD YOU DON'T BELIEVE IN?
Ø ARE THE RESOURCES SPECIFIED IN THE CONTRACT -
FUNDING OR OTHERWISE - ADEQUATE FOR YOU TO BE ABLE
TO DO THE WORK? IS COMPENSATION ADEQUATE TO PAY
FOR EVERYTHING YOU HAVE TO DO? IF YOU HAVE TO
SPEND THE MONEY FIRST, THEN SUBMIT A BILL TO BE
REIMBURSED, CAN YOU HANDLE THE CASH FLOW?
Ø ARE THERE PROTECTIONS WRITTEN IN FOR YOU, AS WELL
AS FOR THE FUNDER, IN THE CASE OF DISAGREEMENT, OR
CHARGES OF VIOLATING THE CONTRACT?
Ø ARE THE RESTRICTIONS AND REGULATIONS, IF THERE ARE
ANY, REASONABLE AND NOT DISRUPTIVE TO THE OVERALL
OPERATION OF YOUR ORGANIZATION? ARE THERE LIMITS
ON WHOM YOU CAN SERVE, FOR INSTANCE, THAT WOULD
MAKE OTHER PARTS OF YOUR WORK DIFFICULT?
Ø IS ANYTHING IN THE CONTRACT DIFFERENT FROM WHAT
YOU'VE BEEN TOLD PREVIOUSLY?
Ø THE LENGTH OF CONTRACT SHOULD NOT BE A MATTER OF
CONCERN. IT CAN BE LONG OR SHORT. RATHER IT SHOULD
BE OF A REASONABLE LENGTH AS IT’S THE CONTENT THAT
Ø THE TIME LIMIT OF THE EXISTENCE OF THE CONTRACT
SHOULD BE STATED CLEARLY.
Ø THE OBLIGATIONS OF THE PARTIES SHOULD BE EXPLAINED
CLEARLY AND HOW THEIR PERFORMANCE IS EVALUATED.
ALSO, WHAT WILL HAPPEN IF ANY PARTY FAILS TO
DELIVER WHAT IT HAS AGREED TO?
7.3 BEST DRAFTING PRACTICES
Contracts pervade our daily lives. When we buy food or clothing we are
under contract, when we buy a home and have gas, electricity, and water
furnished to the house, we sign separate contracts. When we marry, we
enter into a contract. When we write a check we act under a contract with
our bank to honour the check, and the check itself may fulfil our obligation
under another contract. When we go to the doctor or dentist, we act under
contracts. We earn our livelihood under contract. The daily business of not
only our households, but of the world, is conducted under a series of
The focus should stay on the content but a good drafting practice views a
contract from every possible angle. A good drafted contract can be a
noteworthy defining factor in the profitability of all the parties entering
into it. The lives of deals between the contracts depend largely on the
contract. With the increasing level of the competition in the economies
around the world what is the key to success is a good drafted contract.
Effective drafting strategies also are critical. Drafters should inculcate and
develop the art for designing, negotiating and drafting agreements, in
order to reduce risks and to maximize business influence. In today’s
supply chain, it is becoming increasingly important for drafters to
understand key provisions in supply agreements is critical to negotiating
and approving supply agreements, managing supply relationships, and
resolving potential and active disputes.7
As already mentioned drafting is an art. Best drafting practise is no set
format or guide, rather it is an applying best points of drafting that is
incorporated while drafting a contract. Let’s see some of these points that
can be include into the contract to convert into a good drafting piece.
Ø PRE DRAFTING STAGE: In the very beginning the focus should lay
on what to include, how to organise the document and the process of
creating that document. The importance of the pre-drafting stage is
often underestimated but it is vital to invest time and effort at this
point not only for the clarification of the respective roles and
responsibilities but also to facilitate the drafting process and
minimise the risk of future misunderstandings. That said, it is
important to avoid going into excessive and potentially confusing
Ø STYLE: Style is the way the contract is written. The clauses, points
and everything that can be called as content should be easy to read
and readily understandable. Every drafter has their own style. They
should follow that but the only thing that they should not loose is the
easily understandable contract. Some points which should be there
irrespective of the style of writing is that the document should be:
• The simpler the document the better it would be. Simplicity is
the assurance of best drafting practise. One might think
bringing into more flowery language; using complex words
make any document strong. But the truth is the simpler it is,
the more effective it would be. It would be advised that while
writing the drafter should keep an eye on how they will read
and seek to write in a style that is easy and pleasant to read.8
Ø RECOGNIZE THE WHY: Before beginning to draft, the drafter
should identify the reason behind formulating the document. Discuss
in detail the reasons with the parties involved, note it down and
figure out as to what is essential and what is not for the document
and then finally structure them.
• Best drafting practices shows that the structure should be in a
manner that the points are logically placed. The agreement
should start with introduction, then move on to the clauses and
then finally end with the consent of the parties. The most
important clauses should be mentioned at the outset itself and
then move on in the decreasing order of importance.
Ø ESSENCE OF THE CONTRACT: As mentioned above the opening
of the contract should be with introduction of the parties,
immediately after that the object of the contract should be laid down.
The object should clearly convey anyone who reads the contract the
reasons and aim of the contract. Best drafting practise says that it
should be done in a way which is comprehensible by the ordinary
• 9The purpose or the object of the contract is instrumental in the
construction of the contract. It should be understood properly
and should be clearly conveyed to the parties by the way it is
structured. The purpose defines the scope, design, and
requirement of the terms to be included in the contract. For
example: a franchise agreement shall have the terms related to
duration of franchise, area restriction of franchise, royalty,
and intellectual property etc.; a supplier agreement shall have
the terms related to delivery of goods and services, price
payment schedule, quality standards, indemnity, rejection and
re-delivery of goods, and dispute resolution mechanism etc.; a
confidentiality agreement shall have the terms related to
definition of confidential information, duration of
confidentiality, exceptions to confidentiality, and breach of
confidentiality etc.; an arbitration agreement shall have the
terms related to reference to arbitration, appointment of
arbitrator(s), choice of arbitration law and fees of
Ø NOTHING IRRELEVANT: In the world of business the most
important aspect is time. Nobody has time to go through irrelevant
stuff. Therefore, the need of the hour and best drafting practices
suggest that the deal should be reduced to essential elements put
together in a contract.
• Parties want the result and the shortest, clearest explanation
through the contract. Nobody wants to know how the clauses
were decided, why only these particular persons are party to
contract, why is the deal being sealed. The only important
point is the essence of the contract, rights and liability of the
parties and the other clauses mutually agreed by the parties.
They only want a contract for a particular deal that would be
profitable for them. Therefore:
o Omit anything not relevant.
o The clauses of the contract should be clear, logical and
Ø KEY DETAILS SHOULD NOT BE LEFT: A contract must
accomplish the objectives of the parties even while it protects the
client’s interests. Occasionally, clients want to omit material
information from the contract and rely on vague descriptions to be
determined later. For example, it’s not uncommon to see contracts
for “consulting services” that do not specify the nature and type of
services. Unfortunately, these contracts leave the door open to
disputes. To ensure precision and completeness, review a checklist
with your client to flesh out the material terms. For example, to add
precision to the broad term “consulting services,” it is a good idea
to attach an annex that lists the specific consulting activities, service
levels, and other details. Clients will appreciate the clarity that
results from this process, and the contract will better reflect the
Ø SHORT MEANINGFUL SENTENCES: The longer the sentences the
complex the document becomes. A single sentence should express
only one idea i.e. the meaning of the sentence should be clear in the
first go. The reader should not feel lost in the sentences. The length
sentence should never kill the purpose. The length of the sentence
should always be what is required.
Ø SIMPLE ENGLISH: The key point is that all aspects of the contract,
whether clauses or schedules, should (where possible) be written in
plain English with short succinct sentences that are easy to follow
and understand. In those cases involving complex legal issues and
concepts, it is often instructive and perfectly acceptable to provide a
"worked example" to illustrate and underline the form of wording
Ø IDENTIFY THE LAW APPLICABLE: A well-written contract of any
kind takes into account legal issues. It should clearly describe the
law that will apply on it, the jurisdictions and the rights and
liabilities of the parties. The contract should always be drafted
keeping the parties in mind and not as a lawyer, as they are the
audience with the greatest need for the information required to be
disclosed in a contract. It makes it easier for the parties to read and
understand the contract and their correct position in the whole
Ø USE THE ACTIVE VOICE12: It is generally easier to understand the
active voice as it is engaging and easier to read. The active voice
generally uses fewer words and permits the use of strong verbs that
highlight who the action-taker is. While the passive voice may be
preferred on occasion, it should be used sparingly as it may add
length to sentences and obscure the identity of the action-taker.
Ø USE PLAIN, EVERYDAY WORDS:13 It is always easier to read plain,
everyday words that are commonly understood. You should avoid
using complex, abstract or formal words whenever there are simpler
and clearer alternatives.
Ø AVOID THE USE OF LEGAL, FINANCIAL OR TECHNICAL
BUSINESS JARGONS EXCEPT WHEN NECESSARY: Whenever
possible, you should always use plain, everyday words to get your
point across to parties. However, if using legal, financial or technical
business jargons is a must, it should be explained the meaning of
these terms clearly when it is first used and considered putting the
terms in a glossary for ease of reference. The explanation for such
terms should be clear and simple so that the parties would be able to
understand your explanation.
Ø AVOID “CUTTING AND PASTING”:14 Cutting and pasting
contractual terms in its entirety from legal documents is a big NO
No. Lengthy contractual terms and legalese are difficult to read and
understand. Instead, the key points of the legal documents should be
summarised clearly and concisely in plain English to facilitate easier