in this lesson and the one that immediately follows we're going to take a few moments to walk through the parts of a formally drafted contract these start out and actually end in a little more of a formulaic manner so there are some parts that you should expect and be on the lookout for and then others are going to vary far more widely based on the type of deal that is involved so what are these parts well in the big picture you should be able to look out for nine parts of a formal contract again these are not required to be present so let me caution you in telling you that these tend to be present there may be some variations some parts that are listed here might not appear in a particular contract or might be in a different order than what's listed here but having said that this is the flow of a professionally drafted contract and it's a useful list to help realize what it is you're seeing when you see one of these documents so in this lesson we're going to cover the first four parts which are fairly formalistic ranging from the preamble down to the definitions section so that's our target for this lesson so be on the lookout for those and then we will conclude in the next lesson with the remaining parts of a typical contract so what exactly is the preamble to the contract that preamble is a reference to the phrase up at the top an introductory paragraph is often the form and it will state the name the date and the parties who are in the agreement so let's look at an example that we're going to use for for some of our terms here let's imagine an employment agreement and it would begin with a statement like this this employment agreement which is now defined as the agreement capital a so we can use that term later on dated march 16th 20x the xx that's just to be variable for a year is between staffing acquisition company a delaware corporation who we're now defining as the company and maria alvarado the executive so notice that this preamble not only says the name of the agreement what and tells us what it's about it's going to be an employment agreement it describes the parties when they are entering into the agreement because we have a date some of these preambles refer to the date in the signature block below that works just as well we've also got nicknames for these parties company and executive that can come in handy because when if we have a form that gets used let's say in lots of different employment agreements we don't have to change the names all the time we can refer to the employer as company and the employee in this situation as executive using this form of contract and that's one of the ways these forms get used again and again so moving on from the preamble many contracts although not all contain a part known as the recitals and it will sometimes be labeled as background and the the style in which these are written can vary uh you may have seen documents in the past that say whereas certain statements and whereas another statement and whereas and you get all through all these whereas clauses that are ultimately telling a little bit of a story about the parties then you would get to the actual substance of the deal well in contemporary style contracts we don't have to have whereas in front of every clause so we might get something that is going to look more like the example that we'll have below now note that the recitals are intended to be helpful they are a description of what was going on with the parties and why they entered into a contract they are not however operative provisions when you read the recitals they do not or at least they should not when the contract is properly drafted they do not require the parties to do anything it's just telling about the parties let's look at this example so we've labeled this section background and we've got three bullet items that are a description of the background to this particular employment agreement company is actively expanding into the houston area market right that tells us what companies doing executive is an experienced professional established in the houston area who is desirous of an opportunity for long-term growth and advancement so we're looking now at the interest of the other parties and now how do these come together that's our third bullet point company and executive together the parties we now have another defined term that we can use for describing both sides the parties believe that entry into a multi-year commitment will provide mutual benefit and certainty to their employment arrangement so what what's happened here is the parties who said look we've got certain things we each want to accomplish on our own side and we think that we're going to be better together now what's the point of putting in uh some of this kind of background well frequently when contracts do end up in litigation there's a fair amount of discussion about the intent of the parties what were the parties thinking what did the parties want to do and oftentimes a court will be in the position of having to reverse engineer that kind of thing based on the surrounding circumstances and really various terms that are written into the contract telling a little story and it doesn't have to be a long one although it can be in some contracts but telling this story gives some flavor and moment to what the parties are doing and what their intent is for example here we can see that their intent is mutual benefit and that there is a hope that the company will be able to expand its houston area presence and that executive will play a pivotal role in doing that specifically by committing to being with the company for a particular period of time none of that is a point that in and of itself is going to be litigated but if the agreement ever were litigated or if it came before an arbitrator if it has an arbitration clause then the decision maker will know here's what the parties were thinking at the time so that's the function of the recitals you won't see recitals in every contract sometime if one is is really short then it won't appear there but they can be very useful and i generally encourage their use in contracts where the interests of the parties are worth documenting once we get past the recitals we get to something that is short but it's actually fairly important at least if you think of the contract as demonstrating the metaphysics of the party's agreement and these are the words of agreement and they're sometimes called words of consideration the reason these terms are important is that they provide the dividing line between the context of the contract who are the parties what were they thinking that's the context and what we will refer to as the operative parts of the contract that is what the parties are actually committing themselves to do or what they are agreeing to be bound by so what do these words of agreement look like and by the way if you literally if these words of agreement are missing there's some argument that maybe you don't have a contract now we could prove it from other attendant circumstances but why would you ever want to do that if you're professionally drafting your contract by all means put in the words of agreement like these here's some here's one of the older forms of words of agreement therefore in consideration of the mutual promises contained in this agreement the sufficiency of which is hereby acknowledged the parties agree as follows now if you think about this phrase following on the heels of the recitals in effect what it's saying is because all these recitals are true and because these particular parties are present they want to exchange some promises and we're recognizing that these promises on both sides have value now the reason historically speaking that that sort of a phrase would be present for contract law purposes is it helps to prevent the parties later on from saying there's no consideration supporting this contract and consideration is indeed a requirement for a typical contract to be enforceable under our common law system so that's the history behind a phrase like this as the words of agreement but the fact of the matter is we don't always have to go through that rigmarole when it is readily apparent from the contract that the parties are making promises and those promises do in fact have value so a shorter form that we might see in some agreements is this accordingly the parties agree as follows that language is just as enforceable as the language above it sets out that what follows from this language is the actual operative agreement of the parties but again people have different feelings about this some people really want the language that recites there's consideration on both sides that is sufficient and if that's important you can go with the first form of the words of agreement but what i want you to remember about these phrases however you have chosen to word them is that they are a dividing line everything that comes before is nice discussion telling us interesting things about the parties everything that comes after serves as what the parties have actually agreed to so the words of agreement are actually quite important in that sense following that we get the very first thing that the parties have agreed to and often but again not in every contract this will be the definitions section a definition section is a list it's often put in alphabetical order for the convenience of the parties but it's a list containing terms on which the parties agree there will be a particular usage in the contract definitions can be really important because they prevent disputes later on over the interpretation of the contract if the parties want to establish that they mean some specialized meaning of a word rather than maybe generic english language meaning of the word then a definition section can be very important for setting that out on the other hand if a contract is short or if the contract doesn't have many terms that are used in a specialized sense some contracts will omit a definition section but that being said the more formal a contract gets the longer it gets the more likely the parties will want some definitions and here's what that section will tend to look like it's going to open with a statement like this each term defined in the preamble and the recitals to this agreement has its assigned meaning whoa stop right there what terms were defined in the preamble and recitals well as you saw we described who the parties are we created defined terms for them and in the recitals uh we we stuck in a a definition as well so our definitions that are going to be enforceable were stated in the preamble and the recitals but we don't actually kick them into action until we get to the definitions language so again you don't just want to say definitions and then stick a bunch of words after it there should be some sort of a phrase that says those terms we've already defined they're part of the agreement and so are all the things that we are about to list so here again here's some examples of terms we might define in this employment agreement area means the texas counties of harris fort bend and galveston now that's a great example of a particularized usage of a term when we now in this document refer to capital a area we know that that means some particular zone probably over which this executive is going to have some control in connection with the company or some responsibility with operations in that particular zone but we've actually given it a definition that isn't obvious from use of just the term area so that's very common and notice it's kind of an equal sign we say area means this and then from now on in the contract we can just refer to area if we want to encompass those three counties second benefits has the meaning assigned to it in section 3.2 now wait a minute what's going on here this is an example of a term defined in context so actually the definition section here is a guidebook we've got terms where the definition is stated here but we also have some terms that are going to be defined at the moment they are first brought up in the contract now why might that happen well one reason to define a term in context later on in the document might be because it's only used in that localized area so this this employment agreement might have a section on benefits where the term capital b benefits gets used quite a bit and it's just more convenient to put the definition there instead of making the parties look back that being said a good definition section should be a clearinghouse of terms that are going to be used in the document so we want to have this cross-reference here so benefits we're not going to repeat the definition because heaven forbid we define it in two places and then those two places get out of kilter that that would be a disaster uh that's that creates ambiguity where there doesn't have to be any but we are helping our reader out by pointing that person to the definition and if you want to know what benefits means just look at section 3.2 later on in the contract and notice we're going in alphabetical here a b well turns out the next term is c this is a multi-word definition here we have another form of definition not means not has the meaning assigned to it but this time it's includes and this is called a definition by example it is not a favored form of definition because it means it can't be nailed down but sometimes that's exactly what the parties want they want to know and this is probably the employer that wanted to put this in here that certain things definitely are cause for termination but the employer wanted to leave open the possibility that other causes might exist and that's how we end up with a definition like this one so let's read it cause for termination includes an indictment of executive for theft embezzlement or any other crime of immediate financial risk to company so there you have it this is whatever the cause for termination will be we want to make sure that the parties understand it includes reaching the level of an indictment now from a criminal law perspective that means executive doesn't have to be convicted at any point when the executive simply gets indicted and that is charged with a crime she could potentially be terminated for cause under this particular contract so that's an important definition in that sense that it makes clear that that's a possible outcome it also shows us that there are causes that are short of committing a crime or but really things that are just putting the company at some sort of risk where maybe we would consider that to be for cause and for whatever reason the parties didn't nail that down further this creates probably more risk for the employee than it does for the employer but sometimes both parties will have incentive to keep a definition vague rather than more specific which is usually what we would favor in a contract but wrapping up the definition section i just want you to see that if we wanted to add another term in this list and we'll assume the list goes on beyond these three definitions it's easy to put it in there because we just stick it in alphabetical order some contracts will number the definition section so this would be number one number two and number three but it's often a better drafting practice not to put that numeration in there because the numbers would get out of whack every time you want to add a new definition in and stick it in the middle in its appropriate alphabetical order location so if we're referring to terms by number then again we've got the risk of a bad cross reference and we don't do that so that's one reason when i'm drafting a contract i tend to favor definitions in alphabetical order that are not numbered i tell you that to say you'll see all kinds of forms if you go and look at a bunch of contracts so that gets us through the beginning of a typical professionally drafted contract so let's go through a recap of some of the major points of what we've learned first of all that generally professionally drafted contracts will begin and they will end with some more formalized sections and we'll hit the the ones at the ending as we talk about the the business issues in the next lesson but for the moment you've seen now how there are these more formalized sections that do appear at the beginning of the contract and we'll look at the remaining parts in in our next lesson second point we've learned is that what we know what these opening sections are they're the preamble the recitals the words of agreement and definitions and if you have all of those in a professionally drafted agreement you're off to a good start i've warned you and will warn you again things won't always be exactly in this order but they typically are and you can be on the lookout for this but again if you see a contract where all the definitions were put at the end that doesn't make the contract any less valid it just makes it a little weird from a standard drafting perspective finally we did explore a bit about the writing style of formalized sections like the words of agreement sometimes they'll be stated in plain language sometimes they'll use musty archaic language like whereas and heretofore and i tend to favor the plain language approach but others have a strong preference the other direction for whatever reason that's in their comfort level and what you should know is somebody who's going to be dealing with these documents is you'll see them drafted both ways and so long as they're drafted correctly style should not affect enforceability competent drafting is competent drafting regardless of the style so you should be able to see both types and know that both types are out there all that said that brings us to the end of our lesson on the opening parts of a formally drafted contract