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Tailoring a Form Contract to Meet A California Business Lawyer’s Client Needs

Tailoring a Form Contract to Meet A California Business Lawyer’s Client Needs

Practical Guidelines for Form Contracts

The following six practical guidelines that I provide will assist any individual in successfully revising a form contract, tailoring it, and turning it into a well-drafted, complete, and effective contract that meets a client’s needs.

  1. Fact Patterns

    Think through the life of the contract under various fact patterns.

    First, hypothesize performance. What will happen, moment by moment, if the parties comply with all of the terms in a timely manner? Does the contract contain all of the necessary “rules” and details to assist the parties in knowing how to perform their duties?

    Most form contracts do not adequately set forth the steps necessary for the parties to understand what needs to be done to carry out their contractual obligations. Every contract should clearly answer these six questions:

      (1) who is obligated to perform;
      (2) what is the obligation;
      (3) by when must the obligation be performed;
      (4) where will the performance take place;
      (5) how is the obligation to be performed; and (6) if performance involves money or goods, how much?

    Second, envision nonperformance and default. Ask yourself what if one or both parties fail to perform all or part of the contract–are the consequences of failure to perform stated in the agreement and closely linked to the performance required? The contract should protect the client by stating a remedy for the potential default of each obligation. Default provisions contained in most form contracts are rarely adequate and they generally do not comply with the parties’ intentions; the remedy of the default provision is usually termination of the contract and for many breaches, the non-defaulting party still does not desire to terminate the contractual relationship, says California business lawyer Steven C. Peck.

    Finally, consider the worse case scenario. Assume that the parties become hostile toward each other, seeking to undermine the other party at every opportunity. Will the contract provide sufficient guidance to govern the relationship? Will it provide sufficient guidance to a court interpreting the contract or imposing remedies, if necessary? California business attorney Steven C. Peck suggests that you contact an experienced California business lawyer to represent your interests in case of a “worst case scenario”.

  2. Rights and Obligations

    Clearly and consistently set forth the parties’ rights and obligations. In its most basic sense, a contract sets forth the private law governing the parties’ relationship. Therefore, it is vital that it clearly and precisely sets forth the parties’ contractual obligations and rights. It is also very important that these duties and rights are consistently drafted throughout the contract. While there are several acceptable choices of language to use when drafting, the key is to be consistent throughout the agreement. Whenever a party has a mandatory contractual obligation, state that obligation with the word shall and never use the word shall to have any other meaning. Thus, you should be able to substitute “has the duty to” whenever you use the word shall.

    Since a mandatory contractual obligation is synonymous with a legal duty, a party’s failure to perform that duty rises to the level of a breach and may result in an award of damages.

    On the other hand, whenever a party does not undertake a legal obligation, but is entitled to exercise a right or privilege under the contract, state the authorization with the word may; you should be able to substitute “is authorized to” or “is entitled to” whenever you use the word may. The contract must clearly distinguish between a party’s mandatory legal duty subject to breach, and his or her privilege to perform states Los Angeles business attorney Steven C. Peck. who may be contacted toll-free at 1.866.999.9085 and on-line at www.premierlegal.org.

    Finally, state conditions with the word must; you should be able to substitute “has to do X before Y will happen” whenever you use the word must. The key distinction between a mandatory duty and one that is conditional is that in the latter, the party’s legal obligation to perform does not become mandatory unless and until the condition is met. In other words, the party’s failure to perform that obligation results in a breach only if and when the condition has been met.

  3. Provisions

    Understand every provision of the contract. One of the problems with using a form contract is that you were not the drafter of the document; thus, you may not understand every provision of the agreement, and not every provision in the form is relevant to the transaction at hand. When using a form agreement, never leave in a provision because you do not understand its purpose (do not assume it must be important or relevant), and never take out a provision simply because you do not understand its purpose. You must review each provision until you understand it completely. Only then can you decide whether to include, omit or modify that provision.

  4. Recitals and Definitions

    Use recitals and definitions to reflect the parties’ specific transaction. Although not part of the operative terms of the contract, recitals can effectively be used to state the parties’ intentions or to provide relevant background information. Since the contract may eventually require interpretation by a court, it should include within its four corners all of the information that may be useful to explain the parties’ contractual relationship, any past history, and the parties’ intentions that may not be clear from the operative terms of the contract itself.

    For example, while courts are becoming increasingly hostile to contracts in which parties surrender fundamental rights, such as access to the court system, if the parties truly wish to waive their rights to a jury trial, they may do so. In these contracts, the waiver should be drafted so that it is clear and conspicuous, and the recitals should include some language regarding the parties’ intent to waive their legal rights to a jury trial.

    However, drafters must be careful not to include any representations in the recitals that may have legal significance because the recitals are not part of the body of the agreement and, therefore, there may not be any legal remedies if the representations are, in fact, false says California business lawyer Steven C. Peck.

    Additionally, the use of definitions enables the drafter to tailor the meanings of certain terms used in the contract to the subject transaction, and also can prevent inadvertent changes of language. Generally, if the word or phrase as used in the contract is intended to vary in any way from the standard dictionary definition of that word or phrase, or if the word or phrase does not have a standard dictionary definition, it should be defined within the contract. There are three basic types of definitions:

      (1) Precise definitions, drafted using the word means;
      (2) Enlarging definitions, drafted using the phrase “including but not limited to” after the definition, followed by illustrative examples; and
      (3) Limiting definitions, drafted using the phrase “but does not include” after the definition, followed by the limitations of the definition.

    An example of each type of definition follows:

      (1) “Land” means the property located at 123 Smith Lane;
      (2) “Land” means the property located at 123 Smith Lane, including but not limited to the residential house, separate garage, and vacant barn; or
      (3) “Land” means the property located at 123 Smith Lane, but does not include the vacant barn.

    The golden rule of contract drafting: never change your language unless you wish to change your meaning, and always change your language if you wish to change your meaning, ambiguity is not tolerated.

  5. Plain Language

    Use plain language. Contracts should be drafted with clarity and should be easy to read and understand by legal and lay audiences alike. Thus, omit legal jargon and unnecessary words, and eliminate wordy phrases from form contracts. Since the words of the document will govern the parties’ relationship, rights, and legal duties, they should clearly communicate their meaning to the parties themselves, and not only to their counsel. As most practicing lawyers are aware, a majority of available form contracts fail to adhere to this advice. They are strewn with “whereas,” “witnesseth,” and “to wit”–all of which detract from the readability and comprehension of the contract. It is also important to check to see if your jurisdiction has a plain language law, mandating contracts to be written in a clear and coherent manner using words with common meanings; in fact, in some states, plain language laws dictate the number of syllables in the words and the number of words in each paragraph of the contract. Failure to follow the application of plain language laws may impact the enforceability of the contract.

  6. Proper Grammar, Clear Style, Logical Organization

    Use proper grammar, a clear writing style, and logical organization. Contracts generally describe events that will take place in the future, but it is a continually speaking document and should be drafted in the present tense. Draft using the active voice. Ask who is obligated to do something or to refrain from doing something, and make the subject do the action. When drafters use the active voice, the identity of the actor is clear. This is vital so that the contract clearly and unequivocally expresses the parties’ legal duties.

    In addition, draft useful headings and organize the terms around those headings. Even if your form contract contains a boilerplate provision stating that the headings should not have any operative meaning, the fact is that those headings are read by the parties, their counsel, and possibly a court; therefore, make them work. Keep sentences short, where possible, or use tabulation for clarity.

    Be sure to connect modifying words to what they modify, i.e., in “the new house and car” phrase, is the car new too? Finally, use proper punctuation to avoid costly misinterpretation of the contract. For example, one legal dispute resulted in a finding that the contract could be terminated at any time with proper notice, contrary to one party’s understanding that the contract had an initial five-year term. This ruling was based solely on the (mis)placement of a single comma, and saved the other party to the agreement an estimated $1 million by enabling it to terminate the contract within the first five years of the contract term.

Nursing Home Abuse & Neglect Attorney Steven Peck

About the Author

Attorney Steven Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.

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