Contract Law, Revised: February, 2021

Drafting a Contract
To be studied from:
1. The Book: CONTRACT LAW, 6th Edition, by Catherine Elliott and Frances Quinn (from page
118 to page 125
2. This Handout No. 12 (+ PowerPoint Presentation for clarifications)
3. See also the Draft – Sample Contracts available on Moodle

Please note that the Book is based on the UK Legal System, therefore occasionally there may be differences
between the stated in the PowerPoint Presentation (which is based mainly on the MAK and US legal
systems) and the Book. The differences are useful for comparison purposes.

TYPICAL CONTRACT PROVISIONS

In the subsections below COMMON types of provisions are discussed. However it should be stressed that in
addition to these provisions, many contracts usually include special types of provisions which are applicable
for the relevant contract, depending on the type of the contract.

1. Parties, Date & Place, Signatures, Seal/s

The Parties of the Contract are identified at the beginning of the contract. Where a party is a legal entity the
person representing the legal entity (legal or authorised representative) should be stated, together with his
position in the entity (giving him/her the authority to conclude that specific contract). The Date (& Place) of
signing the contract, the authentic Signatures of the parties, and the authentic/official Seal/s (if legal entity)
of the company/ies are essential.
When identifying INDIVIDUALS for the purpose of signing a contract, the following information should at
minimum be obtained: Full Name and Surname, Address, Unique Identification Number, and ID Number.
Copy of the ID Card should be made.
When identifying LEGAL ENTITIES for the purpose of signing a contract, the following information should
at minimum be obtained: FULL Name of the Legal Entity, Head Office/Address, Unique Tax Number,
Name Surname and Position of the person representing the legal entity. In addition to this info, different
countries may ask additional information, for example in Macedonia it is wise to also obtain the Unique
Identification Number of the Legal Entity (mati~en broj na pravnoto lice). Full Name of the Legal Entity for
example means: “Company for Production, Sale and Distribution of Beverages SOFTDRINK AD Skopje.” –
Connection with the Business Law Course ….

2. Rights and Obligations

The rights and obligations section of a contract is a detailed description of the rights and obligations of the
parties and the deadlines for performance. If one party's obligation is to create a multimedia work,
software, or content for a multimedia work, detailed specifications should be stated.

3. Representations and Warranties

A warranty is a legal promise that certain facts are true. Typical representations or warranties in contracts
concern such matters as ownership of the contract's subject matter (for example, real estate) and the right to
sell or assign the subject matter. In multimedia industry contracts, warranties of ownership of intellectual
property rights and non-infringement of third parties' intellectual property rights are common.
For contracts involving the sale of goods, certain warranties are implied under law, unless specifically
disclaimed by the parties.

Example of Representation and Warranty Clause in a Loan Contract

“The Borrower warrants:
- that it will cooperate with the Lender in the monitoring of the use of the funds borrowed under this Loan
Contract;
- that it will promptly provide all financial statements and related materials needed by the Lender, which
Borrower warrants to be true, complete and accurate;
- that it is the sole owner of the mortgaged real-estate and it has acquired all the necessary documents,
approvals, etc. to mortgage the same.”

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See more Representation and Warranties in a loan contract - in the Sample Loan Contract, available
on the SharePoint.

Lessor (Landlord) Representations and Warranties

Most lessors (landlords) attempt to lease space on an “as-is” basis without representations or warranties
regarding the condition of the premises or the tenant’s ability to use the premises for its intended business.
Due to the current market, landlords have been more willing to make limited representation and warranties if
requested by lessees (tenants). Few sample representations and warranties are given below.
Example: “The Lessor represents and warrants the following:
Condition of the Premises. The Building is, and will remain during the entire term, in compliance with all
applicable laws, rules, regulations, ordinances and local codes, including without limitation, the rules and
regulations governing asbestos and asbestos containing materials.
The Building is, and will remain during the term, in compliance with all covenants, conditions and
restrictions affecting the Building.
The Building is, and will be upon the commencement of the term of this Lease, free from Hazardous
Substances and in full compliance with all applicable Environmental Laws. As used in this paragraph, the
term “Environmental Law” shall mean any federal, state or local law, statute, ordinance or regulation
pertaining to health, industrial hygiene or environmental conditions, and the term “Hazardous Substances”
shall mean any material, waste, substance, pollutant or contaminant that may or could pose a risk of injury or
threat to health or the environment.
Lessee’s (Tenant’s) Use. The current zoning for the Building will allow the Lessee (Tenant) to use the
Premises for the permitted uses set forth in this Lease. The Tenant’s use of the Premises permitted under this
Lease will not violate any Applicable Laws. Landlord will take no actions that will unreasonably or
materially affect Tenant’s ability to conduct its normal business operations in the Premises and use the
Premises for the purposes permitted herein”.

Even with the above representation and warranties from a landlord, it is still advisable the lessee to do his/her
own due diligence and not rely solely on the landlord’s representations and warranties. Though the lessee is
legally entitled to rely on the reps and warranties, the reps and warranties do not enforce themselves.
The lessee must sue the lessor (landlord) in court for a breach of the reps and warranties and prove its
damages. During any suit, the tenant must continue to pay rent and honor the lease.
To make it more difficult for the tenant to enforce the reps and warranties, a landlord may limit the
reps and warranties “to its knowledge,” or more strictly “to its actual knowledge.” For example, a
landlord could make a representation that “no hazardous substances exist in the premises.” That is a fairly
strong representation, because it is false and the tenant has a claim if any hazardous substances exist in the
premises. A more limited representation would be “to landlord’s knowledge, no hazardous substances exist
within the premises.” In that case, the tenant must not only prove the existence of hazardous substances, but
also that the landlord knew or reasonably should have known of the existence of hazardous substances.
(Source: http://azleaselaw.wordpress.com/2010/04/19/landlord-representations-and-warranties)

Representations and Warranties in Employment Contract

The Representations and Warranties clause of an Employment Contract generally warrant that the parties are
free to enter into the contract and that, by doing so, they will not be violating any other contracts. Some
contracts only include a warranty by the Executive while others include warranties by both parties, whether in
a single clause or separate clauses for the Executive and the Company.

Clause examples are similar in language and in the elements included in the clause. The language differs
primarily in specificity of the representations.

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Standard Clause

Representations and Warranties (mutual). The Company and the Executive respectively represents and
warrants to each other that each respectively is fully authorized and empowered to enter into the Contract
and that their entering into the contract and [to each parties' knowledge] the performance of their respective
obligations under the Contract will not violate any agreement between the Company or the Executive
respectively and any other person, firm or organization or any law or governmental regulation.

OR

Representations and Warranties (unilateral). The Executive represents and warrants to the Company that
[to the Executive's knowledge] the Executive is under no contractual or other restriction or obligation which
is inconsistent with the execution of this Contract, the performance of his duties hereunder, or the other rights
of the Company hereunder.

Alternative Clause

Executive's Representations. Executive hereby represents and warrants to the Company that (i) the
execution, delivery and performance of this Contract by Executive do not and shall not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which
Executive is a party or by which she is bound, (ii) Executive is not a party to or bound by any employment
contract, noncompete contract or confidentiality obligation with any other person or entity, and (iii) upon the
execution and delivery of this Contract by the Company, this Contract shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms. Executive hereby acknowledges and
represents that she has consulted with independent legal counsel regarding her rights and obligations
under this Contract and that she fully understands the terms and conditions contained herein.

(Source:http://www.contractstandards.com/document-checklists/executive-employment-agreement/
employment-agreement-reps-and-warrantie)

Example of Representation and Warranty Clause in Employment Contract in Macedonia:

The Employee represents and warrants that he/she meets the requirements for performing the work under this
contract and that he/she has notified the Employer of all known facts relevant to the employment, as well as
illness or other circumstances that may prevent or substantially limit the performance of the obligations
under this contract, or may endanger the life or health of third persons.

The employee should submit evidence to attest the above, such as:

- Diploma
- Health Certificate

- ____________________

Important Note: Breached representations and warranties are the most common cause of litigation in
acquisitions. One should be very careful in determining the breadth and scope of the representations
and warranties one is willing to make.

4. Remedy Clauses
These clauses state what rights the non-breaching party has if the other party breaches the contract. In
contracts for the sale of goods, remedy clauses are usually designed to limit the seller's liability for damages.
Example (Loan Contract): “In the event of default of the Borrower, the Lender has the right to take the
following steps:
(1) Stop disbursing loan funds that Borrower has not yet used;

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(2) Unilaterally and prior to the regular due date, declare the amounts previously disbursed MATURE
and require the Borrower to immediately return the principal and pay all matured interest; and
(3) Take other actions as provided by applicable laws and regulations.”

5. Cancellation and Termination Clauses

These clauses ensure that either or both parties have the right to cancel or terminate the contract under certain
circumstances. Cancellation and Termination Clauses describe the methods of giving notice of exercise of the
cancellation/termination right, and whether in case of cancellation, the breaching party must be given an
opportunity to cure the breach before the other party can cancel the contract.
According to the US Uniform Commercial Code, ARTICLE 2 – SALES, PART 1. SHORT TITLE,
GENERAL CONSTRUCTION AND SUBJECT MATTER: "Termination" occurs when either party
pursuant to a power created by contract or law puts an end to the contract otherwise than for its breach. On
"termination" all obligations which are still executory on both sides are discharged, BUT any right based on
prior breach or performance survives. "Cancellation" occurs when either party puts an end to the contract for
breach by the other and its effect is the same as that of "termination" except that the cancelling party also
retains any remedy for breach of the whole contract or any unperformed obligation. Generally, these clauses
describe breach of contract events that trigger the right to cancel the contract (for example, non-payment).

6. Applicable Law and Jurisdiction Clauses

These clauses concern the settlement of possible disputes between the parties, arising from or related to the
contract. In contracts concluded between parties coming from same jurisdiction, the competent court within
the jurisdiction is specified, and the law, even though presumable to be the one of the same jurisdiction. In
contracts concluded between parties from different jurisdictions, the jurisdiction, and applicable law should
always be specified.
Example 1: “This Contract shall be governed by the laws of the Republic of Macedonia. Any litigation under
this Contract shall be resolved in front of the Skopje Courts.” or Example 2: “This Contract shall be
governed by and construed in accordance with the laws of ______________. The contracting parties hereby
submit to the jurisdiction and venue of the Court of the _____________ for any legal action arising from or
connected with this contract.”
Settlement of the dispute through arbitration rather than through court litigation may also be agreed. If so,
these clauses generally should include the name of the organization that will conduct the arbitration (the
American Arbitration Association, for example), the city in which the arbitration will be held, the rules to be
used by the arbiters, and (possibly) the method for selecting arbitrators.

7. Term / Effective Date and Expiration Date

The term of a contract means the period for which the contract has been concluded. The Effective Date is the
date it enters into force and into application. However sometimes a contract may enter into force on one day
and have postponed application (to enter into application on another day). The Effective Date is usually the
date the contract has been signed by all the contracting parties. If after signing of the contract certain actions
should be taken prior to its application the contract Effective Date may be postponed or its application may be
postponed. The Expiration Date of the contract is the last date of the contract, after which it shall no longer be
in force. Usually, the Effective Date and the Expiration Date are stated with specific dates (not in descriptive
form) at the beginning (first page) of the contract. This is advisable in order to prevent misunderstandings.

8. Integration (“Merger”) Clauses

Rarely used in RM, however very advisable. Integration (“Merger”) clauses state that the written document
contains the entire understanding of the parties. The purpose of integration clauses is to prevent the parties
of a contract from later claiming that the contract does not reflect their entire understanding, and that it
was changed by a subsequent oral contract, or is not consistent with prior contracts.
Example: “This Contract and the attachments hereto contain the entire agreement of the parties with respect
to the subject matter of this Contract, and supersede any and all prior and/or contemporaneous oral or
written negotiations, contracts and understandings with respect thereto. This Contract may only be amended
by a written document duly signed by all parties.”
A party entering into a contract which includes this type of language should make sure that all promises and
agreements are actually included in the written contract, as otherwise it may be impossible to enforce the
unwritten promises.

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TIPS FOR CONTRACTS

The contract formation process varies widely, from contracts formed quickly in face-to-face meetings to
contracts formed after teams of attorneys have spent months in negotiations. Below are some general tips for
all types of contracts:
1. Write it down.
All contracts should take the form of a written document signed by both parties. If you reach an
agreement over the phone or in a meeting, write the contract as soon as possible. The process of writing down
the contract's terms forces both parties to think about - and be precise about - the obligations they are
undertaking. When the terms of a contract are written down, the parties are likely to create a more complete
and thorough agreement. A hastily made agreement is likely to have gaps that will have to be resolved later -
when the relationship may have deteriorated.
2. Make sure you are comfortable with your obligations.
If a term - for example, a deadline - makes you uneasy, make a counter-offer that substitutes a term with
which you are more comfortable. Do not assume that the other party will excuse you from strict compliance
and do not rely on the other party's oral assurances that it will not insist on strict compliance.

3. Remember Murphy's Law.

Before you sign a contract, consider what could go wrong or what could make performance of your
obligations difficult or expensive. If the actual performance is more difficult or expensive than you
anticipated, that is not a valid excuse for not performing. Enter into a contract only if you believe that you can
meet your obligations, on time.
4. Don't leave anything out.
Accurately cover all aspects of your understanding with the other party. If the other party wrote the contract
based on an oral understanding reached earlier, make certain that the written terms match the terms of your
oral agreement. Don't leave points out of the written document, even if the other party says, "We don't need to
put that in writing."

5. Cover all options.

Cover all options, consequences, and possibilities. You should not fail to address an issue because it is
"sensitive." Deal with the sensitive issue during the negotiations. Make sure that your contract includes an
integration (merger) clause (see "Typical Contracts Provisions,") to avoid disputes about whether proposals
made during negotiations but not included in the final written agreement are part of your contract.
6. Don't use unclear language or try to sound like a lawyer.
If you don't understand exactly what the other party is expecting you to do, don't try to camouflage the lack of
understanding by using vague language. Vague language leads to misunderstandings, disputes, and lawsuits.
Use simple language that accurately expresses your agreement with the other party. Don't try to sound like a
lawyer, and don't complicate things unnecessarily.
7. Define any ambiguous terms.
There's a classic contracts case in which one party contracted to sell chickens to the other party. The seller
thought "chicken" meant chicken of any age, including old and tough chickens. The buyer assumed "chicken"
meant tender young chickens suitable for frying. The seller shipped old chickens, and the buyer screamed
"breach". To avoid such misunderstandings, define any terms that may be ambiguous.
8. Be careful using “Terms of Art” (legal terms).
Terms of art are words with specific meaning in the law. "Assignment," for example, has a number of
meanings in the English language. In intellectual property law, "assignment" means a transfer of ownership of
intellectual property. Use "assignment" in your contracts when you mean transfer of ownership of
intellectual property. Don't use the word in its other meanings or you will create confusion.
9. Use Terms Consistently.
Legal writing is not creative writing. Don't use "royalty" in one paragraph, "license fee" in a second
paragraph, and "use fee" in a third paragraph. Pick one term and stay with it throughout the contract.

(Source: “Contracts Law”, By Mark F. Radcliffe and Diane Brinson)

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Summary Questions

1. Which are the 8 common types of contract provisions?

2. When signing contracts, which are the minimum information needed for identification of individuals and of
legal entities, as contracting parties?

3. Name several tips (minimum 7) to be used when drafting or reviewing any type of contract, prior to
signing it.

4. When signing a contract where the other contracting party is your close friend and he/she says: "We don't
need to put that particular point in writing", you may leave certain point/s out of the contract because you
have earlier reached an oral understanding regarding the specific point/s. (T or F)

5. When signing a contract it is important to understand all the provisions of the contract. If certain provisions
are unclear or ambiguous, you should define and clarify the same, to your understanding and agreement. (T or
F)

6. (Circle one correct answer)

The purpose of Integration (‘Merger”) Clauses is to:
 prevent the parties of a contract from later claiming that the contract does not reflect their entire
understanding or
 merge two independent entities into one or
 integrate the duties of the contract in only one person/entity.

7. Why are Remedy Clauses important? Give an Example.

8. What is the purpose of the Representations and Warranties Clauses. Give an example.

9. (Circle one correct answer) “The Borrower warrants that it will promptly provide all financial statements
and related materials needed by the Lender, which the Borrower warrants to be true, complete and accurate.”
The stated is one of the following types of contract provisions/clauses:
 Remedy Clause,
 Representations and Warranties Clause,
 Duties and Obligations of the Parties,
 Integration (“Merger”) Clause.

10. What would you “representation and warrant” in a sale contract?

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