Anyone can scribble on a napkin the words “I, Joe, will pay Sally $15 tomorrow” and think that the napkin constitutes a valid contract. However, a “good” and valid contract must include certain specific elements in order to be enforceable. What are those elements, though? Is it enough to include just those initial elements in your contract? And how can one be sure that they have drafted a truly strong, clear contract that will best protect them and their rights?
In order to pass the old fashioned “sniff test” a basic contract must:
Identify the parties involved. Who is agreeing to the contract? Are there any beneficiaries, or guarantors involved? Are the parties individuals, businesses, or a combination thereof?
Identify and clearly explain the agreement that gives rise to the contract. What are the parties exchanging? And, perhaps most importantly, what consideration is being offered for that exchange?
Identify all key terms and conditions. Without such detailed information, a court may not be able to determine what is and isn’t enforceable when a dispute arises, much less whether the contract itself is enforceable.
Be signed and dated by all of the parties.
While including the above elements in a contract should result in a strong, clear and likely enforceable contract, one would be wise not to stop there. In addition to those basic elements, also consider some other provisions, which will serve to strengthen the contract and clearly delineate the rights and obligations of the parties involved. The following are some provisions that one ought to strongly consider in order to draft a strong, clear contract.
Key Provisions for a Strong Contract
In addition to the key terms and conditions, it is important to specify what, exactly, will constitute a breach of the contract and, in the event of a breach, what remedies are available to the parties, and how the outcome of the dispute will be determined. In addition to a dispute resolution clause, it is also important to include language indicating which state or jurisdiction’s laws will determine the outcome of a dispute. And, if the contract provides that a dispute may go to litigation, it should also provide details regarding what courts will have jurisdiction over any dispute.
Integration clauses help create strong, clear contracts in that they provide that the contract is the full and final agreement between the parties, and that there are no other external agreements. Integration clauses are particularly important in the event that one party asserts the existence of some prior agreement, oral or written, that conflicts with the contract at hand.
Finally, if there is a dispute and you end up before a court, there may be the possibility that the court will find that one particular part of the contract is illegal, ineffective, or otherwise unenforceable. As such, in order to ensure that the rest of the contract remains valid and enforceable, one should include a severability clause, which states something along the lines of “The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.”
How To Determine What to Include in the Crucial Provisions
Creating strong, clear contracts can be daunting. In order to facilitate the drafting process, you should take the time to thoughtfully and thoroughly determine a number of things:
First, what is the goal of the contract; what are you, as a party to the contract, trying to accomplish? Why are you exchanging or doing X, and what must X look like in order to meet your goals?
You should be able to describe, in detail, the things that the parties will do or exchange, including the consideration that one party will provide to the other and the value of that consideration. Consideration is what you receive for being a party to the contract.
Second, how could the contract, or the relationship between the parties, turn sour?
Depending upon the exchange and/or contract, you may need to envision and specify quality and/or quantity of goods, delivery dates, start and completion dates of work, etc., that must be met in order to accomplish the goal discussed above.
What rights, obligations, and duties will each party have in order to meet the goals of the contract?
Will either of the parties make any representations or warranties with regards to their negotiation or performance of the contract?
Finally, what do you, as a party to the contract, want to see happen in the event that something goes wrong?
If something does go wrong, how do you want that dispute dealt with? Would you prefer to mediate the dispute, go through binding arbitration, or let a judge or jury decide the outcome? And, regardless of which dispute resolution method you chose, which state’s laws would you like to govern the contract?
Would you like to require that the party at fault be required to pay the attorney’s fees of the other party?
Finally, if you decide that any dispute will be dealt with through litigation, you should also think about what courts the parties would like to be heard in.
While one may believe that the subject matter of their contract is simple and straightforward, the above information should make clear that, regardless of that belief, a substantial amount of forethought and preparation is required in order to draft a strong, clear, and valid contract which not only meets the parties’ basic goals, but also protects the parties in the event that any type of dispute arises from that contract.
Our firm has extensive experience in negotiating, drafting, and defending a wide variety of contracts. Whether you seek to enter into an agreement and need to draft a contract, or you have an existing contract that you would like reviewed, or perhaps one that has been breached, give us a call and see how we can help you meet your goals while simultaneously protecting your interests!