Volume 20, Number 6
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DRAFTING THE CONTRACT OR SETTLEMENT AGREEMENT THAT STAYS OUT OF COURT
By James W. Martin
James W. Martin has practiced law in St. Petersburg, Florida, since 1974.
The following tips apply to writing all types of agreements: insurance policies, office leases, real estate contracts, sales agreements, employment contracts, equipment leases, and prenuptial agreements. They even apply to stipulations and settlements in litigation, which should be clear enough to short-circuit litigation in the future.
Before you write the first word
- Ask your client to list the deal points. This can be done as a list, outline, or narration and will help the client focus on the terms of the agreement.
- Engage your client in what-if scenarios.
- Ask your client for a similar contract. Clients often have had similar transactions in the past or have access to contracts for similar transactions.
- Search your office computer or the Internet for a similar form.
- Obtain forms from books or CD-ROMs.
- Don't let your client sign a letter of intent without this wording: "This is a non-binding letter of intent that contains provisions that are being discussed for a possible contract; this is not a contract; this is merely an outline of possible contract terms for discussion purposes only." Sometimes clients are eager to sign something to show good faith before the contract is prepared. A properly worded letter of intent is useful at such times, so long as it clearly states it is not a contract but merely an outline of possible terms for discussion.
The first word
- Start with a simple, generic contract form.
- State the full legal names of the parties in the first paragraph.
- Identify the parties by "nicknames." Referring to the party in a shortened form of the full name after the first reference will make the contract easier to read.
- Be careful with shortened names that are also legal terms. Do not use "Contractor" as a party reference unless that party is legally a contractor. Similarly, "Agent" should be used only when you intend for that party to be an agent; if you do, specify the scope of authority and other agency issues to avoid future disagreements.
- Include a blank for the date in the first paragraph.
- Include recitals to provide background. Recitals are the "whereas" clauses that precede the body of a contract. They provide a simple way to bring the contract's reader up to speed on what the contract is about, who the parties are, why they are signing a contract, etc. The first paragraph in the body of the contract can incorporate the recitals by reference and state that they are true and correct, which may avoid a later argument as to whether the recitals are a legally binding part of the contract.
- Outline the contract by writing out and underlining paragraph headings in their logical order.
- Complete each paragraph by writing the contract terms that apply to that paragraph.
- Keep a pad at hand for notes. It is normal to think of additional clauses, wording, and issues while writing a contract. Also keep your client's outline and other forms in front of you as you write, and check off items as they're covered.
- Use repetition only for clarity. Saying the same thing more than once creates ambiguity. Write something in more than one way only if the concept is exceedingly difficult to grasp.
The writing process
- Title the document "contract" or "agreement." If your client wants a contract, call it a contract. A judge now sitting on the federal bench once ruled that a document entitled "Proposal" was not a contract even though signed by both parties. Say what you mean.
- Use short sentences.
- Write in active rather than passive voice. Active sentences are usually short and clear. For example: "Seller shall sell the Property to Buyer" instead of "The Property shall be sold to Buyer by Seller."
- Avoid terms like "biweekly." It can mean both twice a week and every other week (also "bimonthly," etc.). Instead, use "every other week," "twice a week," "semimonthly."
- Use modifiers carefully. Be sure a modifier refers to the word it modifies.
- Avoid terms like "lessor" and "lessee." They are easily reversed or mistyped. Use "landlord" and "tenant" instead. The same applies for lienor and lienee, mortgagor and mortgagee, grantor and grantee, licensor and licensee.
- Clarify "herein." Does "wherever used herein" mean anywhere in the contract or anywhere in the paragraph?
- Enter numbers in words and numerals: ten (10).
- When you write "including," consider adding "but not limited to," unless you intend the list to be all inclusive.
- Don't rely on the rules of grammar. The rules of grammar you learned in school are not universal, and the judge or jury interpreting the meaning of your contract may have learned different rules.
- Don't be creative. Use simple words and common meanings. Write for the nonexpert.
- Be consistent in using words. If you refer to the subject matter of a sales contract as "goods," use that term throughout the contract; do not alternately call them "goods" and "items."
- Be consistent with grammar and punctuation.
- Consider including choice of law, venue selection, and attorney fee clauses.
Write for the judge and jury
- Assume the reader is a knowledgeable layperson.
- Define a word by capitalizing it and putting it in quotes.
- Define words at first use.
- Explain technical terms and concepts.
Keep your client informed
- Always use a cover letter.
- Tell your client the ideas that come as you write. Many ideas will occur to you as you write: what might go wrong with the deal, what might happen in the future, ways to better structure the issues. Write these in your letter to the client.
- Inform your client of the risks.
The first draft
- Check spelling, paragraph numbering, and cross references-electronically and by proofing the document.
- Have your administrative assistant or paralegal proof the document.
- Track the drafts. Avoid confusion from the beginning by numbering and dating all drafts at the top of the first page.
- Get the client's opinion.
- Save all drafts as multiple files on your computer.
- Compare subsequent drafts. Saving draft versions makes it easy to compare one version to another using the computer's "compare" feature or using the CompareRite computer program.
The final draft
- Print the contract on 24-pound bond paper instead of 20-pound copier paper. The heavier bond paper makes it easy to tell the original contract from copies-and will also last longer.
- Use the same paper for all copies, including amended pages, to avoid an argument that pages were substituted after the contract was signed.
- Sign the contract in blue, not black, ink. This, too, makes it easier to differentiate the signed original from photocopies.
- Have the parties initial every page to make it less likely someone could claim a page was changed after the contract was signed.
- Have parties and witnesses include addresses with their signatures to help locate the witnesses if the contract is contested.
- Be sure corporate officers include titles, corporation name, and the word "as." Failure to do this can result in personal liability of the officer. The proper way to sign in a representative capacity is as follows:
ABC Corporation, a Florida corporation
John Jones, as its President
- Add a notary clause that complies with the notary law of the signing location.
FOR MORE INFORMATION ABOUT THE TORT TRIAL AND INSURANCE PRACTICE SECTION
- This article is an abridged and edited version of one that originally appeared on page 50 of The Brief, Winter 2003 (32:2).
- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.
- Website: www.abanet.org/tips/.
- Periodicals: The Brief, quarterly magazine; Tort Trial & Insurance Practice Law Journal, quarterly law review; TortSource, quarterly newsletter.
- Books and Other Recent Publications: Litigating the Employment Tort Case, 2d ed.; A Complete Guide to Premises Security Litigation, 2d ed.; Law of Profitable Bonds; Spoliation of Evidence: Sanctions and Remedies for Destruction of Evidence in Civil Litigation; Litigating the Sexual Harassment Case, 2d ed.; The Law of Suretyship, 2d ed.; Fundamentals of Employment Law, 2d ed.; Professional Responsibility to Third Parties; Also, 33 video programs with written materials, including Techniques for Direct and Cross-Examination; Deposition Practice, Strategy and Use; Accident Reconstruction; Marketing Yourself to the Jury; Avoiding Disaster at Trial.