Lesson on Formal Contract Drafting

Overview

• Focus on understanding the parts of a formally drafted contract.
• Contracts can be formulaic but vary based on the type of deal.
• Expectation of nine parts in a formal contract (not always present in every contract).
• This lesson covers the first four parts: Preamble, Recitals, Words of Agreement, Definitions.

Parts of a Formal Contract

1. Preamble

• Introductory paragraph at the top of the contract.
• States the name, date, and parties involved in the agreement.
• Example: An Employment Agreement with defined names (e.g., Company and Executive).
• Provides nicknames for parties to simplify references throughout the contract.

2. Recitals

• Sometimes labeled as "Background."
• Describes the context and intent of the parties entering the contract.
• Not legally binding or requiring parties to act.
• Helpful in litigation to understand parties' intent.
• Example: Describes company's expansion and executive's role.

3. Words of Agreement

• Also known as "Words of Consideration."
• Marks the transition from context to the operative parts of the contract.
• Essential for establishing consideration which is necessary for enforceability.
• Can be phrased in various ways (e.g., "Accordingly, the parties agree as follows").

4. Definitions

• Lists terms with assigned specific meanings within the contract.
• Helps prevent disputes over term interpretations.
• Placed alphabetically and sometimes cross-referenced within the document.
• Example: "Area" defined as specific counties; "Benefits" referenced in a later section.

Key Points Recap

• Contracts generally start and end with formalized sections.
• Opening sections identified: Preamble, Recitals, Words of Agreement, Definitions.
• These sections are often, but not necessarily, in a standard order.
• Style of language varies (plain vs. archaic), and both are valid as long as drafted correctly.

Conclusion

• Understanding these initial formal sections is crucial for interpreting and drafting contracts.
• Next lesson will cover the remaining parts of a typical contract.