Legal Document Preparation Class 2Slide 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 2Slide 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 2Slide 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 2Slide 4 Parts and Clauses of the Contract 1 Title –This should reflect the nature of the contract, although keep 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 the agreement 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 an intended third party beneficiary, that party should be named as well, so as to increase the chance that the third party beneficiary can enforce the contract

Legal Document Preparation Class 2Slide 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 2Slide 6 Parts and Clauses of the Contract 3 Entirety of agreement –This clause (not required) states that no other or oral agreement should be binding against this agreement This allows the parties to be secure in the knowledge that they 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 does not usually excuse performance, etc.), so it’s important to put his in if you don’t want the default rules Passage of title –Many sellers want to keep title until it’s paid for…

Legal Document Preparation Class 2Slide 7 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 2Slide 8 Parts and Clauses of the Contract 5 Assignability of rights –Contract rights are generally assignable unless stated otherwise, so if you don’t want the rights transferred to a third party, this is an important clause Subrogation –This gives the rights of one party to another party with respect to certain rights outside this agreement E.g., you give your doctor your rights to collect from your health insurance company Indemnification –When one party agrees to pay back another party in case there are certain types of losses

Legal Document Preparation Class 2Slide 9 Parts and Clauses of the Contract 6 Accounting –Here, you assign responsibility for formally account under the 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 is necessary Liquidated Damages –This assigns damages in case there’s a breach This cannot be a penalty clause- it must be a reasonable approximation of what the actual damages would be

Legal Document Preparation Class 2Slide 10 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 on these so they can have lawyers who are expert in one state’s laws only Severability –In case one clause is unenforceable, the rest should be enforceable 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 2Slide 11 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