Module 4

MODULE 4
DRAFTING A CONTRACT
“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 written contract.

4.1 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 promise.1

The points clearly intend to define the rights, liabilities Every contract has some points which are
and duties of each party related to the contract. There the reasons for its existence. Each point
are many kinds of contract, and the subject matter for deals with an explicit feature related to
each one of it differs, therefore there can be no set
format on which it can be based. Every contract the subject matter of the 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 sections:

SECTION 1: PREAMBLE Like any other important document, the 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

1 Gillies P. (1988). Concise Contract Law, p. 105. Federation Press.

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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 the parties SECTION 2: TERMS OF THE
agree to and have to perform for successful CONTRACT
completion of the contract. Some of the
common conditions which are found in almost
every contract are:

ü 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.

ü 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.

ü 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.

ü 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.

ü 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, injunction etc.

ü 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.

ü 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

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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.

ü CONFIDENTIALITY2: What is confidential, and what is not-confidential?

ü INDEMNIFICATION CLAUSE3: 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.

ü 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.

ü 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 made.

ü 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.

ü 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
or parties.

ü 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.

ü 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

2http://www.mondaq.com/india/x/193518/Contract+Law/Contract+Review+amp+Drafting+Rules+One+Should
+Know
3 http://www.acquisition.gov/far/html/Subpart%2016_6.html#wp1080953

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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

SECTION 3: END This is the last section of the contract. The 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.

4.2 CHECKLIST FOR PREPARING CONTRACTS

While writing the contract the writer should keep in mind following points:

v 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?

v Simple English should be used. Avoid jargons.
v There should be clarity in writing. Be precise (accurate, complete and, exact),

specific, and focused.
v Sequence logically by a chronology of events.4
v Terms of contract should not be drafted vaguely. It should appear to be free of

ambiguity and uncertainty.
v Think from the reader’s point of view while writing the contract.

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
be5:

þ 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?

þ 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?

þ 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

4 http://www.con-tracts.com/id29.html
5 http://ctb.ku.edu/en//tablecontents/sub_section_main_1873.htm

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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?
þ ARE THERE PROTECTIONS WRITTEN IN FOR YOU, AS WELL AS FOR THE FUNDER, IN THE CASE
OF DISAGREEMENT, OR CHARGES OF VIOLATING THE CONTRACT?
þ 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?
þ IS ANYTHING IN THE CONTRACT DIFFERENT FROM WHAT YOU'VE BEEN TOLD PREVIOUSLY?
þ 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
MATTERS.
þ THE TIME LIMIT OF THE EXISTENCE OF THE CONTRACT SHOULD BE STATED CLEARLY.
þ 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?

4.3 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 contracts.

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

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supply agreements, managing supply relationships, and resolving potential and active
disputes.6

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. These are:

ü 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 detail.

ü 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:

Ø Crisp
Ø Understandable
Ø Complete
Ø Logical
Ø Clear

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.7

ü 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.

6 http://www.autoindustrylawblog.com/2015/01/08/best-practices-for-designing-negotiating-and-drafting-
supply-chain-agreements/
7http://www.aat.gov.au/Publications/SpeechesAndPapers/Downes/ExcellenceDecisionMakingOctober2010.htm

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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.

ü 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 reader.

8The 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 arbitrator(s) etc.

ü 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.

8http://www.mondaq.com/india/x/193518/Contract+Law/Contract+Review+amp+Drafting+Rules+One+Should
+Know

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o The clauses of the contract should be clear, logical and comprehensive.

ü 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 parties’ bargain.9

ü 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.

ü 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 used.10

ü 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
scenario.

ü Use the active voice11: 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

9 http://www.acc.com/legalresources/publications/topten/ttdp.cfm
10 https://cips.org/Documents/Resources/Knowledge%20Summary/Writing%20Contracts.pdf
11http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation%20Papers/150205%20Co
nsultation%20paper%20on%20Guidelines%20on%20Good%20Drafting%20Practices%20for%20Prospectuses.
pdf

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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.
ü USE PLAIN, EVERYDAY WORDS:12 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.
ü 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.
ü AVOID “CUTTING AND PASTING”:13 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
understanding.

12http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation%20Papers/150205%20C
onsultation%20paper%20on%20Guidelines%20on%20Good%20Drafting%20Practices%20for%20Prospectuses.
pdf
13http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation%20Papers/150205%20C
onsultation%20paper%20on%20Guidelines%20on%20Good%20Drafting%20Practices%20for%20Prospectuses.
pdf

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