So you want to create a contract? You have agreed to a deal and all that remains is to reduce that agreement to writing. How do you go about writing a contract? What questions should you be asking yourself as you reduce the agreement to writing? Think of contract drafting as requiring one part each: psychologist, English major, computer programmer, and lawyer. This framework helps to ask the right kind of questions.
When thinking like a psychologist, ask what each party wants out of the deal, and what assurances and exit strategies each party needs to feel secure. The answers to these questions are the heart of any agreement, yet it is surprising how these questions are left unanswered. Each party should honestly think about these questions in the course of negotiations, and a party should not sign a contract that fails to explicitly include acceptable answers to them. The first step when reducing an agreement to writing is to spell out what each party must do, what each party gets if the deal works as planned, and what happens if the deal falls apart.
When thinking like an English major, ask whether there is any way for a stranger to misunderstand anything that has been written. If the deal does fall apart and end up in court, the people who decide what the contract means will be twelve strangers who have no idea what you intended except for what was written in the contract. Remember the advice in English class to avoid the passive voice? The phrase Once payment is made fails to clarify who is making and receiving the payment. Even pronouns can be misunderstood and should be eliminated. The phrase After he makes payment requires a stranger to guess whether he refers to Johnson or Smith. Much better to say Once Johnson pays Smith. Contracts are not stories. Stories must be easy to read, and contracts must be hard to misunderstand.
When thinking like a computer programmer, turn the contract into a flowchart and ask whether there is any way for the contract to yield a result that is unacceptable. For example, Johnson must pay $500. To who? When? And what happens if he does not? Much better to spell out Johnson must pay Smith $500 on the first day of each month. If Johnson fails to make any timely payment, Smith may give notice to Johnson that the contract is terminated and cease providing any further services to Johnson. Read the contract as though the other party is trying to slip in hidden ways to say Gotcha! When a deal is signed people tend to be optimistic and pleasant and to say, “Oh no, I would never do that!” But two years later when the deal has fallen apart and people are unhappy with each other, you will wish that this unwritten assurance had been written down on paper. Computer programs and contracts should be written in such a way that nothing unexpected can cause them to crash or fail.
When thinking like a lawyer, bring to the deal a specialized knowledge of the law. Are magic words required? Not usually, but leases require a magic phrase called a granting clause. Email communications may not be enforceable unless “signed” by the sender, or unless your contract says that all emails are treated as though signed by the sender. Does a statute regulate the transaction? Not usually, but real estate transactions and consumer credit transactions often require that specific disclosures be made. Are there rules that usually apply that you want to negate? Sometimes, any uncertainty about the meaning of a contract is usually interpreted against the party who wrote the contract, however, this rule can be disclaimed in the contract itself.
Writing a contract is like buying insurance, you should insure assets that you cannot afford to lose, and write contracts for deals that you cannot afford to have fall apart without spelling out your rights. When writing a contract, an experienced attorney can help talk you through the answers to these questions.
If you need counsel or representation in creating or negotiating a contract, contact Hayes, Berry, White & Vanzant at 940-387-3518 or here to assist you when you need us.
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