How to Keep Contracts Out of Court (part 1)

• Publication year: 2017
• Author: Posted on May 12, 2017 by Julie Brook, Esq.

How to Keep Contracts Out of Court (Part 1)

Posted on May 12, 2017 by Julie Brook, Esq.

Julie Brook, Esq. has been with CEB since 1995. Before that, she practiced civil litigation with Landels, Ripley & Diamond in San Francisco. She is a volunteer arbitrator with San Francisco's Department of Human Services.

This material is excerpted from the CEBblog™

Copyright 2017 by the Regents of the University of California. Reproduced with permission of Continuing Education of the Bar - California. (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our Web site, CEB.com).

The only contracts that see the inside of a courtroom are those that are poorly drafted or don't accurately capture the parties' intent. Here are five contract drafting mistakes and how to avoid them.

1. Adapt an appropriate form to reflect the parties' intent. Recycling agreement forms is common, but can be disastrous if you use the wrong form or don't thoroughly adapt the document to the deal at hand. Be very careful when reviewing and revising the documents. And ask your clients to confirm that you've captured their intentions. Encourage them to question anything that doesn't make sense and to consider whether any important point has been left out.
2. Avoid memoranda of understanding (MOU) and letters of intent. A MOU or a letter of intent is sometimes used when the business team wants to rush "something in place." They rarely include all the contract terms that a careful lawyer would require. If the business terms or legal issues are complex and require more time to negotiate, consider a preliminary, first-phase-only agreement. With lower stakes and an interim relationship, it should be easier to negotiate than a longer-term agreement, while avoiding the problems of the typical MOU.
3. Don't use a "best efforts" standard to define party obligations. The "best efforts" standard is too subjective. What qualifies as "best" for the receiving party may fall far short of what the performing party considers "best." Courts have allowed testimony on the parties' intent and expectations not stated in the underlying contracts. This means depositions, testimony, and more money in the litigators' bank accounts. Instead of using a "best efforts" clause, state specifically what must be done. This will provide more objective standards and reduce the chance that the parties' expectations aren't aligned.
4. Require the aggrieved party to state explicitly "this is a Notice of Default (or...