The Art of Drafting Contracts
Contracts are a beautiful thing. They allow you to create a legally binding obligation as real as if it were a statute. They allow for the predictability in the marketplace that allows capitalism to be. Contracts are a wonderful tool that should be undervalued or overlooked as a mere necessary step to get to the real business.
You may think that as long as the monetary aspect of a contract looks right, and you have all of the other standard clauses, that you’ll be adequately protected. I cannot tell you how wrong you might be.
Benefits of an Effective Agreement
First, an effective contract requires a meeting of the minds. It makes the parties sit down and discuss aspects of their agreement that might otherwise go unaddressed. It can ensure that all parties are on the same page and have the same understanding as to the smaller details of the agreement. A jointly drafted contract will also likely ensure performance from both sides as they both had a part in preparing the terms.
Second, a good contract lacks ambiguity. It ties up loose ends, anticipates and shores-up potential disputes and places limitations on any exceptions written into the agreement. Amguity can be extremely expensive to litigate, as it requires litigation not only of the breach, but also of the interpretation of the contract itself.
Third, a strong agreement protects its own enforceability. It contains clauses that (1) ensure that it represents the entirety of the parties' agreement, (2) allow one part of the contract to be severed if it is later determined to be unenforceable while preserving the remainder of the agreement and (3) it provides instructions on the mechanisms available to the parties to enforce the agreement (arbitration, mediation, forum selection, etc.).
Fourth, an effective contract protects you from bet-the-house litigation. There are some cases so large that the legal costs alone could bankrupt your company. However, there are clauses available, including limitation of liability clauses, indeminfication clauses and clauses allowing for injunctive relief that could offer you substantial protection from bet-the-house litigation.
Before you start utilizing a contract, review it to determine whether, at the minimum, it meets the above four criteria.
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