Module 5 How to Draft a Contract

HOW TO DRAFT A CONTRACT
LEGAL DRAFTING I0I
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A contract is drafted with following basic
elements

PREAMBLE
This section identifies the parties to the agreement,
the date of the agreement, the place of formation
and the addresses of place of business of the
contracting parties.
Illustration:
This Frame Agreement (hereinafter referred to as the
“Agreement”) is entered into on this day of . . . . .
BY AND BETWEEN
XYZ and ABC

RECITALS
Recitals are the introductory statements in a written
agreement or deed, generally appearing at the
beginning, and similar to the preamble. They set out
a précis of the parties' intentions; what the contract is
for, who the parties are and so…

DEFINITIONS
Here it defines terms that appear in different parts
of the agreement.
Illustration :
“Day” means calendar day of the Gregorian
calendar.
“Month” means calendar month of the Gregorian
calendar.

SUBJECT MATTER OF CONTRACT
This section provides for structure of the
transaction broadly defining the scope and the
method of payment, time of completion and
the main matter of the contract.

CONSIDERATION & TERMS OF PAYMENT
This section provides for amount to be paid, the terms
of payment, any financial formulas for post closing
adjustments. It also provides for break-up of
purchase price.

SCOPE OF SUPPLY & SERVICES
Essential part of any contract is description of
transferred item and / or services. Based on the
nature of items being transferred (product / services
/ real estate / business / intellectual property) a
schedule is to be made.

INDEMNITY AND RISK ALLOCATIONS
The most important part is to provide party’s right of
indemnification if the party discovers that the other
party has breached one or more of its
representations. In this way representations serve as
a mechanism for allocating economic risks between
the parties.

CONFIDENTIALITY
The contracting parties may insist on keeping all
information that would be available to the other
party during execution of the contract confidential.

EFFECTIVE DATE,
TIME OF COMPLETION & VALIDITY
The contract or agreement should have a date stated as the contract date
or effective date. This date is not necessarily the date when the contract
was signed but rather the date from which all the contractual rights and
obligations begin and from which point any term of time, usually
commences.
The time allowed for completion of all work required by the Contract will
be stated in this clause and will be known as the Contract Time.
Validity period of a contract determines time interval over which the terms
of a contract apply. Each contract includes a basic validity period. The
validity period consists of a start date and an end date.

TERMINATION
To reduce ambiguity it is always preferred to have a
termination clause in the contract.
Typical termination provisions include clauses requiring
mutual agreement of the parties before termination and
clauses permitting termination due to failure to fulfill
closing conditions before specified date.

ASSIGNMENT
Contract rights are freely assignable in absence of an
express provision to the contrary. This provision describes
what constitutes an assignment and certain types of
assignments.

MISCELLANEOUS (BOILERPLATE)
PROVISIONS
These are normally kept at the end of the contract
and become useful in case of disputes.
Examples:
Choice of Law
Notice
Modification of Agreement
Code of Conduct

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Module 5 How to Draft a Contract

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