businessmen handshake and contractIn our increasingly technological world contracts are becoming more prevalent and more complicated. Because it often isn’t practical or necessary to hire lawyers, many of these contracts are being written by business owners and their employees. How well they write those contracts can determine the survival and success of the business. With that in mind, these three rules of contract drafting can help you ensure that your contracts will protect your interests and avoid costly disputes.

Rule 1: There is Strength in Simplicity

The purpose of most contracts is to 1) ensure that a certain set of events takes place, and 2) protect yourself in the event that those events do not take place.

To achieve those goals a contract needs to be clear and unambiguous. Our natural instincts are to avoid ambiguity by detailing every specific example we can think of and adding “etc.” to the end. At best, these attempts at specification waste time and energy and at worst they can lead to confusion, litigation, and results contrary to the purpose of a contract. Consider the following examples.

  1. Seller shall refund to Buyer the purchase price of all food products damaged during delivery including but not limited to broken eggs, bruised fruit, and prematurely perished items.
  2. Worker shall inspect and maintain all machinery in good working condition. Once a month Worker shall ensure that all blades are sharp, all moveable parts are well greased, and every machine is functioning at highest capacity.

In both of these examples, the portion in italics could be removed without altering the contractual obligation. Even worse, the italicized portions could create issues.  What if:

  1. a can of soup is dented? It’s definitely not unusable like the example foods.
  2. a machine breaks down between months? It’s unclear if this clause contains two separate obligations or just one.

Even little questions like these can send a contract into litigation where, no matter how the jury rules, only the lawyers will win. Instead, keep your contracts short. Make each party’s obligations clear and precise and remember that there is strength in simplicity.

Rule 2: Write with the Worst in Mind

A corollary to the first rule. While there is strength in simplicity, all bases need to be covered. Too often we write contracts thinking only of what we want to happen and we fail to address what might happen. One advantage lawyers have when writing a contract is that they have seen all of the ways an agreement can go wrong, they know what to prepare for.

Let’s look at the examples from above, and see how the contract language could be improved.

Example #1

Original language: Seller shall refund to Buyer the purchase price of all food products damaged during delivery.

Who decides what is damaged? And how? What happens when Buyer refuses to accept a soda bottle because the label has a tear in it?

Revised language: Seller shall refund to Buyer the purchase price of all food products damaged during delivery. Buyer shall, in its sole discretion, determine whether or not a product is damaged.

Example #2

Original language: Worker shall inspect and maintain all machinery in good working order.

What is good working order? What if Worker doesn’t know how to fix a problem? This example only addresses what the contractors want to happen. If we think instead about what might happen, we can address these questions before they’re asked.

Revised Language: To the extent that his education and training allows, Worker shall inspect and maintain all machinery in good working condition as determined by Employer.

With these minor edits, we remove ambiguities and avoid problems without sacrificing simplicity. Even so, these edits do not solve every possible problem.

For every obligation in a contract, there are hundreds of ways it can go wrong. So take the time to think about what might happen and draft simple, strong clauses to address those possibilities.

Rule 3: Use Plain, Clear, and Effective Language

AGREED that whereas heretofore the parties defined herein have acted separately, henceforth said named parties will act in unison for the betterment of their respective endeavors.

Although the above contract introduction is grammatically correct, I maintain that it is utter nonsense devoid of any value. Unfortunately I have only my fellow lawyers to blame for the widespread use of such terms and phrases. Many lawyers believe that the best way to get results is by intimidating opponents with complicated, intelligent sounding vocabulary. They are wrong.

A contract that is not easily understood is easily ignored. Therefore, our contract language should be modeled after the language we use in everyday conversations. Below are my tips for making sure your contract is plain, clear, and effective.

  1. Avoid legal and technical terms – even if both parties understand it, will a jury?
  2. Define your words – even nontechnical terms like “food” or “medicine” can be clearer if accompanied by a contract-specific definition.
  3. Use binding language – don’t say “the insured party agrees to” say “the insured party shall” or “the insured party must.”
  4. Repeat words – if you say “the buyer shall” don’t later say “the buyer must.”
  5. Read it out loud – if it sounds good out loud, chances are it will be clear to the reader.

The clearer the language is, the lower the risk of misunderstanding by a party, a judge, or a jury. If you wouldn’t say it to a jury, don’t write it in a contract.

In every contract there will be a myriad of specific legal and technical issues to consider. These three rules cannot help you develop the substance of your contract. But if you follow them, they will help to ensure that the substance of your contract is carried out effectively and efficiently.

All opinions provided are for informational and educational purposes only. No attorney client relationship has been formed or should be inferred. If you have specific questions please speak with a qualified local attorney.

A self proclaimed rogue lawyer, Jordan brings a modern approach to helping clients. His practice focuses on fighting for the rights of injured workers in the Seattle area. Find him at palacelaw.com, on twitter @jordanlcouch, or email him at jordan@palacelaw.com.

ContractRoom is a proponent of standardization of language and process so as to facilitate faster and more effective multi-party collaboration in business negotiations and contracting. If you have content or solutions that you’d like to include in our blog, please contact Katie Cook at kcook@contractroom.

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