Drafting Contracts to Avoid Headaches

Greg Harney
Originally published in
Business Vancouver Island - October 2009
by Greg Harney

In the movie Michael Clayton, George Clooney’s character describes the lawyer’s role as that of a janitor. A good portion of a litigator’s work does involve cleaning up the messes resulting from broken-down business relationships, but the good news is that some of these messes can be avoided by insisting on plain-language drafting and by keeping an eye out for future potential disputes.

Many people assume that contracts have to be full of legalese or be in fine print, which isn’t the case. Lawyers and companies draft documents that way for various reasons, but partly to cover themselves and partly because that’s just how it’s always been done.

You may be an experienced businessperson, but if your contract is full of legalese you’re probably not even going to read the whole thing, because you know you won’t understand it all. For obvious reasons this isn’t a good idea. It’s not unusual to see situations where people are not aware of all of their remedies when the other party breaches the contract.

Clarity is paramount. Terms should be in plain English. A regular person should be able to read and understand them. If there’s a dispute, the more clearly the contract is written, the easier it will be to sort out the rights and obligations and to determine liability.

Some people believe that legalese makes a document more official or more iron-clad. Actually, a contract only has to set out who has to do what, in exchange for what, by when, and how they’re supposed to do it. In other words, it should describe the rights and obligations of both parties, the consideration, and the penalties for not complying. “Jake will sell his bike to Rhianna. Rhianna will pay Jake $100 for the bike.” Those are valid contractual terms. It also helps to make the terms as specific as possible. “Rhianna will pay Jake $100, by certified check, by December 1, 2009.” This eliminates uncertainty about method and date of payment, which tightens up the contract.

Contracts should also be drafted with an eye towards future possible disputes. Litigation doesn’t start the first time you march down to court to file your claim; in a sense, it starts much before that – when you first draft the contract. This sounds cynical but it’s actually helpful to both sides at least to turn their mind to this. When a dispute arises from a commercial transaction, one of the first things a judge will do is look at the terms of the contract. You want to avoid any confusion about the parties’ intentions. In addition to describing the rights and obligations, a good contract should also set out any specific dispute resolution mechanisms: court, arbitration, venue of dispute resolution, etc.

If you’re considering entering into a contract with someone, it’s to your advantage to draft it yourself (or have your lawyer draft it), rather than have the other party draft it, because then you can frame the terms in the way you want. This doesn’t mean you can load up the terms only to your benefit since this can work against you if it goes to court, but it’s still advantageous to be able to choose the wording.

By keeping these principles in mind, you might not prevent disputes, but you may reduce the cost and uncertainty involved in resolving them.