Legal Document Preparation Class 2 Slide 1
Elements of a Contract to be Considered in Drafting
• The writing should clearly indicate the presence of an
offer and acceptance
• The writing should state the consideration for the
agreement
• The consideration on both sides must consist of legal
subject matter
• All parties must have the capacity to contract
• It must be determined if the contract falls within the
statute of frauds and, if so, whether it is satisfied
Legal Document Preparation Class 2 Slide 2
Preliminary Considerations in Drafting a Contract
• All parties must be identified
• Whether each party owns the property interests that will
allow him/her to fulfill the contract must be determined
– E.g., does the party own the land he’s agreeing to sell?
• Each party should have the chance to consult with a
lawyer independent of the other party before a contract
is executed
• The applicable state and federal statutes must be
reviewed to make sure the contract is never voided for
illegal subject matter
Legal Document Preparation Class 2 Slide 3
Preliminary Considerations in Drafting a Contract 2
• Make sure no defenses exist to the enforcement of the
contract, such as:
– Conflicts of interest by the attorneys involved
– Mistake (mutual or unilateral)
• It should be made sure that each party understands the
nature of the agreement and all the important terms
– Fraud/ Misrepresentation
– Duress or undue influence
• It should be determined whether important clauses
should be phrased as conditions or simply clauses in the
agreement
Legal Document Preparation Class 2 Slide 4
Parts and Clauses of the Contract 1
• Title
– This should reflect the nature of the contract, althoughkeep in mind that this will not be binding on anyone
• Opening Paragraph
– The can state recitals and the purpose of the agreement,although it will not be binding if contradicted later in theagreement unless is specifically says that it should be
• Parties
– The names of both parties and their addresses
• In addition to the parties giving up consideration, if there is anintended third party beneficiary, that party should be namedas well, so as to increase the chance that the third partybeneficiary can enforce the contract
Legal Document Preparation Class 2 Slide 5
Parts and Clauses of the Contract 2
• Consideration
– Even if it’s obvious from the agreement what the
consideration is, it should still be clearly stated in the
contract
• Description of property or services to be rendered
– Make this as specific as possible!
• Duration of Agreement
– Without a term a contract ends when it is fulfilled or
perpetually; or for a “reasonable” time period if perpetual is
unreasonable.
• Payment or services to be provided
Legal Document Preparation Class 2 Slide 6
Parts and Clauses of the Contract 3
• Entirety of agreement
– This clause (not required) states that no other or oralagreement should be binding against this agreement
• This allows the parties to be secure in the knowledge thatthey have the entire picture on front of them
• Excuses for nonperformance
– The default rules are fairly harsh in this respect(impracticability is hard to come by; death of a party doesnot usually excuse performance, etc.), so it’s important toput his in if you don’t want the default rules
• Passage of title
– Many sellers want to keep title until it’s paid for…
QUIZ TIME!
Legal Document Preparation Class 2 Slide 7
Legal Document Preparation Class 2 Slide 8
Parts and Clauses of the Contract 4
• Risk of Loss
– Which party has the risk of loss during shipping, etc.
• Warranties
– This is especially important in sales of goods cases
– Without a warranty clause, certain warranties are implied,
especially under the UCC. Therefore, this clause can be
as important to disclaim warranty as it is to contains
express warranties
• Insurance and Bonds
– One or both sides are often given the responsibility to
insure the subject of the agreement
Legal Document Preparation Class 2 Slide 9
Parts and Clauses of the Contract 5
• Assignability of rights
– Contract rights are generally assignable unless statedotherwise, so if you don’t want the rights transferred to athird party, this is an important clause
• Subrogation
– This gives the rights of one party to another party withrespect to certain rights outside this agreement
• E.g., you give your doctor your rights to collect from yourhealth insurance company
• Indemnification
– When one party agrees to pay back another party in casethere are certain types of losses
Legal Document Preparation Class 2 Slide 10
Parts and Clauses of the Contract 6
• Accounting
– Here, you assign responsibility for formally account underthe agreement, if applicable
• Confession of Judgment
– This is rare, but can save the need for litigation
• Arbitration clause
• Assigning costs and attorneys fees if litigation isnecessary
• Liquidated Damages
– This assigns damages in case there’s a breach
• This cannot be a penalty clause- it must be a reasonableapproximation of what the actual damages would be
Legal Document Preparation Class 2 Slide 11
Parts and Clauses of the Contract 7• Notice
– This tells each party to where to send notice to the other
• Choice of Law (i.e., which state’s laws control)
– Big companies with a lot of contracts usually insist onthese so they can have lawyers who are expert in onestate’s laws only
• Severability
– In case one clause is unenforceable, the rest should beenforceable
• What is required for future modification or rescission
• What constitutes a breach of contract
• Whether the agreement can be executed in counterparts
Legal Document Preparation Class 2 Slide 12
Other Formal Requirements
• Often, you can have one original and the other party gets a copy.
However, in some types of contracts, each party will need an
original, so more than one original can be executed.
• Any other documents incorporated by reference should be attached
to the agreement (or copies of those docs)
• The following should usually also be done with a contract:
– Signed and dated by each party (with copy of powers if executed
by POA)
– Attestation, acknowledgment and notary (not required, but
usually a good idea)
– Filing with county clerk or other agency
• For certain types of agreements only, like many types of mortgage
and financing agreements