Business LawBusiness LitigationContracts

Anatomy of a Contract (Part 2 of 3)

If you missed “Anatomy of a Contract (Part 1 of 3)click here

In that section I discussed the recitals, or as I refer to it, the “Information” part of a contract. The other two parts are “Action” and “Insurance”. In this post I am going to talk a bit about the “Action” portion of a contract.

To me this is the most important, and often most overlooked part of a contract, especially by those drafting contracts without the help of an Attorney. The most important aspect of the contract is setting out exactly what it is that the parties are contracting for. This takes work and some foresight, but the dividends for spending the extra time upfront pay off 10 fold in its ability to prevent and resolve future disputes.

Here is a small section from the “Action area” of a fictitious contract for the management of a golf course.

Even this example is a bit simplistic, but you can see that the statement “XYZ shall manage and maintain “Green Acres” golf course as a first class facility. Many do it yourself contracts would simply leave it at that. At the beginning of a new deal, everyone is excited and it seems everyone is on the same page. It is not until later that problems may arise.

So, instead we go on to define a “first class” facility in specific detail all the way down to the length of the grass on the greens.

Imagine a scenario where the owner of the course is upset that the Managing company is not keeping the course nice enough. Without all of the sub-categories defining what a “first class facility” is, you are stuck arguing over, and possibly litigating a subjective standard. With the added detail in the “Action” section, now the dispute is an objective one. (ie- either the greens were kept within the 1″ standard or they were not.”)

Having such specificity not only makes future litigation easier, it can make it completely unnecessary. Both parties go into the deal knowing what is expected of them, and knowing what the outcome of any litigation would be because it is so plainly spelled out.

Check out “Anatomy of a Contract (Part 3 of 3)” where I discuss the “insurance” aspect of a contract.

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