THE STRUCTURE OF AN ENGLISH LANGUAGE CONTRACT
(Student Outline)
While perhaps not the “sexiest” topic this term, Contract Law is an essential element of legal training. As a non-native English speaking lawyer in a “globalized” world, it is important that you have a basic knowledge of how to read and understand English language contracts. In order to understand the content of the contract, you must first gain an understanding of how English language contracts are structured and worded. We will therefore spend the lecture looking at the structure, essential elements, and wording of English language contracts. It is hope that this will increase your knowledge, and thus comfortableness, in dealing with English language contracts.
I have also attached a contract that we will use in class as a reference when discussing this topic during the lecture. You should bring both the outline and the sample contract to the lecture.
Some Basic English Contract vocabulary:
A. draft B. breach C. term/clause D. caveat emptor E. damages
F. implied terms G. repudiate H. disclaimer I. expressed terms
J. paragraph/section, section/subsection K. incorporated L. liable
M. indemnify (indemnity clause)
1. ______The general words used to describe a section of the contract.
2. ______The words used when speaking about specific sections of the contract. Most often used when reviewing a contract with a client or attorney.
3. ______The special term used to describe the “writing” of a contract.
4. ______Failure by one party to a contract to perform a promised duty. If this happens, in the common law system the whole contract becomes void. The other party must not perform their duties under the contract and can sue immediately for damages.
5. ______Refusal of a party, in words or actions, to perform a promised duties and indicating this fact in advance, before the time the duty is suppose to be performed.
6. ______The terms actually stated in the contract. These can be the written terms, or verbal ones agreed before or at the time the contract is made.
7. ______Terms and clauses that are “read into” a contract by law or custom and practice without actually being mentioned by any party.
8. ______Money paid as the normal remedy in the law as compensation for an individual or company's loss.
9. ______Inclusion in, or adoption of, some term or condition as part of the contract. These are often other “supporting documents” (schedules, specifications, etc.)
10. ______A person/business who commits a wrong or breaks a contract is held responsible for it.
11. ______A promise by a third party to pay a debt owed, or repay a loss caused, by another party.
12. ______A written document denying legal responsibility, or a limitation of rights that might otherwise be claimed
13. ______A latin phrase meaning “buyer beware”. The common law places responsibility on the buy of items, particularly used or items at auctions, to examine, judge and test the item.
THE “FRONT” OF THE CONTRACT – RECITALS AND DEFINITIONS
1. RECITALS:
Lawyers often begin a contract by giving some background information. This ‘introductory paragraph,’ known as a ______or the recitals in English, also may help make clear the parties’ intentions or to resolve problems of interpretation. Recitals may also be used to secure a remedy by informing the court of the importance of a term. When a judge decides a contract dispute, the central issue in his or her mind is “what was the intent of the parties?” The parties can express that intent in the recitals. An explanation of the purpose of the transaction may assist the court in construing the contract or in determining damages.
The parties often express the reasons behind why they entered into the contract. Such an explanation of the purpose of the transaction may assist the court in construing the contract or in determining damages.
For Example: In a Seller/Buyer contract for the sale of an antique book, the attorney for the Buyer might include in the recitals that Buyer needs this particular book to complete a collection of books that will be worth considerably more with the addition than without it.
If the recital contains this information, it could be used to establish Buyer’s damages in case of breach or even provide the grounds for ______(equitable relief = not money damages, but the book itself).
Copyright , AAlegalconsulting, 2007
2. DEFINITIONS: Following the recitals section, one often finds a definitions section.
Some things to remember about contract definitions:
i) Use the definition section to define:
1. Special “trade” terms (used only in that business)
2. Complicated ideas (rather than having to write them out each time in the contract)
ii) Be sure to use the word defined consistently throughout the contract. This rule applies to ALL words you use in the contract! When learning to write, most of us were instructed to consult a thesaurus so that we would use a variety of words. In the writing of contracts the opposite is true. It is a contract, not a novel, remember?! When reviewing contracts NEVER forget the following rule of drafting:
THE GOLDEN RULE OF DRAFTING!:
This rule should be followed by the drafter, and caught be by careful reader if it has not been followed in the document!!!
For example:
An agreement states that “the parties shall use reasonable efforts to timely perform this contract”. A later provision in the same contract states that “the seller shall use best efforts.”
This change in language may suggest that the parties intended the meaning of best effort to be something different than reasonable efforts, leading to confusion and ambiguity!
THE ‘MIDDLE’ OF THE CONTRACT: OPERATIVE LANGUAGE AND BOILERPLATE
“OPERATIVE LANGUAGE” AND “BOILERPLATE” -
When we read a contract, we must always be clear as to what is the “standard” language found in all contracts (Boilerplate), from the “new” language that dictates the relation between the parties in this specific contractual relationship (Operative Language).
A responsible contract reader must know:
1. The difference between Operative Language and Boilerplate
2. What each type of Boilerplate looks like and how to identify it.
3. Why the Boilerplate language is in the contract in the first place.
Lets first look at Boilerplate, as it is found in every contract and often makes up a great proportion of the actual written contract.
I. BOILERPLATE
The term “Boilerplate” is often used to describe the all-purpose language that is found in every contract, often under the heading ______. Boilerplate terms are statements by the parties that clarify what general law that will govern the contract. Many people who work regularly with contracts tend to just dismiss it as ‘just boilerplate’, but you should not assume that you know what the term means without reading it, and you should never underestimate its importance!
Standard Boilerplate terms include all of the following:
1. ______: Most parties do not want a entire contract to become void (no longer legally binding) because a single clause is not enforceable under the law. In order to avoid this problem, a clause is normally placed in a contract that allows the void clause (or clauses) to be “cut out” of the contract, so that the rest of the contract is still valid.
Example:
The invalidity, in whole or in part, of any term of this agreement does not affect the validity of the remainder of the agreement
2. ______: Many times contracts involve lot of discussion, and thus lots of paper (or at least e-mails) flying around! In order for the parties to make it clear to a reader of a contract that this contract represents THE agreement between the parties, a merger clause is often included.
Example:
This agreement signed by both parties and so initialed by both parties in the margin opposite this paragraph constitutes a final written expression of all the terms of this agreement and is a complete and exclusive statement of those terms
3. ______: Also known as an “Act of God” clause, it protects both parties from being found in breach of contract due to factors beyond the parties personal control.
Example:
Force majeure. Deliveries may be suspended by either party in case of acts of God, war, riots, fire, explosion, flood, strike, lockout, injunction, inability to obtain fuel, power, raw materials, labor, containers, or transportation facilities, accident, breakage of machinery or apparatus, national defense requirements, or any cause beyond the control of such party, preventing the manufacture, shipment, acceptance, or consumption of a shipment of the goods or of a material upon which the manufacture of the goods is dependent.
4. ______: – The parties are always free to modify the contract at a later date, but often times this causes major problems. This is particularly true when a contract is modified orally. If later problems arise between the parties, such oral modification can be both difficult to prove or disprove. In order to avoid this problem, most contract contain this clause.
Example:
All Modifications to be in Writing. This contract may be modified or rescinded only by writing signed by both of the parties
5. ______: The Common Law assumes that a party can give (assign) his responsibilities under a contract to a 3rd party. If the parties do not want this to happen, they have to be sure to put a clause in the contract forbidding it!
Examples:
Either Seller or Buyer may assign its rights under this agreement in whole or in part
No right or interest in this contract shall be assigned by either Buyer or Seller without the written permission of the other party, and no delegation or any obligation owed by either Buyer or Seller shall be made without the written permission of the other party. Any attempted assignment or delegation shall be wholly void and totally ineffective for all purposes
6. ______: In international contracts, it is extremely important to determine whose legal systems is going to govern the contract! In order to make this clear, the parties normally include a such a clause.
Example: In a contract between a California Company and a Canadian Company, where the parties want California law to govern:
The validity, interpretation, and performances of this Agreement shall be controlled by and construed under the laws of the State of California, as if performed wholly within the state and without giving effect to the principles of conflict of law. The parties specifically disclaim the UN Convention on Contracts for the International Sale of Goods.
7. ______: This clause dictates not what law will be used, but what court will here the case. This is know as “jurisdiction”. In international contracts, or any contract where there is large physical distance between the parties, this clause can be important.
Example:
Any legal suit, action or proceeding arising out of or relating to this Agreement shall be commenced in a federal court in the state of Colorado, and each party hereto irrevocably submits to the non-exclusive jurisdiction and venue of any such court in any such suit, action or proceeding.
II OPERATIVE LANGAUGE – refers to the language that affects the legal relationships. The drafter must choose language with care.
In giving you guidance in this area, unlike other areas, I am afraid it is not possible to say, “it is done this way, it is done that way” (Sorry!). Contracts are for the parties to make and the first rule of interpretation is to carry out the parties’ intentions. Therefore, in order to understand the Operative Language of a contract, we must explore the language used in creating the “core” of the contract.
Creating Legal Consequences – The whole point of a contract is to create legal consequences. What a party is to do under a contract, what the other party has a right to receive, and what other options both parties may exercise under the contract are all dictated by specific words and phrases.
As mentioned earlier, these words might already be familiar to you, but “at law” they mean very different things than you learned from your Elementary School English teacher! Even more importantly, these often small, seemingly unimportant words have HUGE legal consequences on the parties. Such words as shall, may, must, if, when, etc. are the key words on which the legal relationship between the parties to a contract depend! It is thus important to explore the meaning of these words in the context of English language contracts, and what legal affect these words have on the relationship of the parties entering into a contract.
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DUTIES
A contract duty is something that, if not performed by the party, will be considered a breach (a breaking of the contract). The following words are most commonly used to create duties and rights in contracts. Whatever word is used to express this in the contract, it should always be possible to replace the word with the phrase: “______”
In English Language contracts you will often see all of the following used to create duties in Contracts:
- will
- shall
- must
- (agrees to) (is obligated to)
The problem is, each of these words has some advantages and disadvantages: