Introduction to Contract Drafting

Summary

This video script introduces the fundamentals of contract drafting, focusing on the two main components: organizational parts and contractual concepts. It explains the typical structure of a contract, such as the frame, definitions, business sections, termination clauses, and boilerplate provisions. Additionally, it covers key contractual concepts like declarations, covenants, representations, warranties, discretionary authority, and conditions, highlighting their roles and differences. Understanding these elements is crucial for creating clear, enforceable contracts and avoiding ambiguity in legal agreements.

Takeaways

• 😀 Contracts consist of two main aspects: organizational parts (framework) and contractual concepts (operative language).
• 😀 The organizational parts of a contract include the formal structure, definitions, business sections, termination provisions, and boilerplate clauses.
• 😀 A declaration in a contract sets policy without creating an obligation or liability; it is typically signaled by the present tense of the verb.
• 😀 A covenant obligates a party to do something or refrain from doing something, creating contractual rights and obligations. It is often signaled by 'shall'.
• 😀 'Shall' is the preferred language for signaling a covenant, as it unambiguously indicates an obligation, unlike 'will' or 'must'.
• 😀 Representations and warranties are related but not synonymous: representations refer to past/present facts, while warranties can extend into the future.
• 😀 Misrepresentation or breach of warranty can lead to liability or rescission of a contract.
• 😀 A grant of discretionary authority allows a party to choose an action but does not obligate them to act. It is typically signaled by 'may'.
• 😀 A condition is an event that must occur before a contract obligation becomes due. Conditions can be express or implied, but drafters focus on express conditions.
• 😀 Conditions can trigger obligations or rights to terminate but do not automatically result in liability or damages unless accompanied by a covenant.
• 😀 The language signaling a condition can include terms like 'if', 'provided that', 'unless', and 'must', which indicate that certain events are not certain to occur.

Q & A

What are the two main aspects of contract drafting?

Contract drafting involves two main aspects: the organizational parts of the contract and the contractual concepts. The organizational parts include the basic format and structure, while the contractual concepts involve the operative elements such as rights, obligations, and conditions.

What are some of the common parts found in every contract?

Every contract contains several common parts, including: the frame of the contract (formal language and signatures), a definition section, business sections outlining rights and responsibilities, a termination section, and a general provisions section (often called boilerplate).

What is the role of declarations in contract drafting?

Declarations in a contract set policy or clarify terms without creating obligations or liabilities. They are typically in the present tense and serve to define terms or establish governing laws, such as 'New York law governs this agreement.'

How do covenants differ from declarations in a contract?

Covenants create obligations or promises, requiring a party to do or refrain from doing something. In contrast, declarations do not create obligations. For example, a covenant might say 'The buyer shall pay the purchase price,' while a declaration merely states a fact like 'The purchase price is $25,000.'

Why is 'shall' preferred over 'will' when drafting covenants?

'Shall' is preferred because it clearly signals an obligation or promise. In contrast, 'will' can sometimes indicate future actions without creating obligations, leading to potential ambiguity. 'Shall' unambiguously signals a party's contractual commitment.

What is the difference between representations and warranties?

Representations are statements of fact about the past or present, while warranties are promises that a fact is true, and they can extend into the future. Both can create liability if they are false, but warranties often cover future conditions, while representations do not.

What is discretionary authority in a contract?

Discretionary authority allows a party to do something or refrain from doing something, but it does not impose an obligation. It is typically signaled by the use of 'may' in a contract, indicating that the party has the choice, but is not required to act.

What is a condition in contract law?

A condition is an event that must occur before performance under a contract becomes due. If the condition is not met, it does not breach the contract but may allow one party to terminate the contract or take other actions, depending on the contract language.

How can conditions be signaled in contract language?

Conditions are often signaled by phrases such as 'if,' 'provided that,' 'unless,' 'in the event of,' or the use of the verb 'must.' These phrases indicate that certain events must occur before a party is obligated to perform under the contract.

How does a condition interact with discretionary authority in a contract?

A condition can trigger discretionary authority. For example, if a tenant fails to pay rent on time, the condition (failure to pay) triggers the landlord's discretionary authority to impose a late fee, though the landlord is not obligated to do so. This demonstrates how conditions and discretionary authority work together in contract terms.