Lecture 9: Process and Structure of Negotiation and Contract Drafting Flashcards
Chapter 9 (32 cards)
What are the three stages in contract drafting and negotiation?
- Contract drafting from precedent or scratch
- Contract revision and negotiation
- Input and evaluation - both parties enlighten their wishes etc.
In contract drafting, what are two starting points?
- Drafting from precedent - model or existing contracts
- Drafting from scratch (zero-based drafting)
What are the advantages and disadvantages of drafting from precedent (model or existing contracts)?
Advantages:
- More efficient since the basic structure is provided
- Cost-effective due to a reduction in transaction time and therefore costs
Disadvantages:
- Quality may vary
- May be outdated,
- Not always suitable for governing law
- Possible bias - balanced or one sided? Which party does the contract favor? Always tailor the contract to the situation and law.
General: Obtaining contracts from e.g. the ICC (Paris) might be trustworthy, but be aware that they might want to sell other things (e.g. arbitration (private arbitrator to settle a dispute), the INCOTERMS, letter of credit etc.
What are the advantages and disadvantages of drafting from scratch (zero-based drafting)?
Advantages:
- Ensures that updated clauses are used
- Gives better chances of enforceability
Disadvantages:
- More difficult
- Expensive
- Slower
How does one find the right model form?
- Start with country-specific, industry-specific and deal-specific forms
- Annotated forms are preferrable
- Compare different forms
- Know the source - no “.com” sites for contracts
In contract drafting, what elements are essential to remember?
- Governing law - remember civil law vs. common law
- Litigation (public) vs. arbitration (private)
- Incorporation of model and standardized terms with mandatory law to tailored contracts
- Clauses - remember to visualize the entire contract lifecycle from goods production to end of warranty duties
- Language - Cross system contracts
- Style
Define ‘Cross system contracts’.
Contracts drawn up in a language different from the language inherent to the law governing the contract
Problems:
- Legal wording is inseparably intertwined with the legal concept itself.
- Typically, a direct translation will not capture the intended content of the agreement.
What are three outcomes/problems of cross system contracts?
1. No translation between the legal concept in the chosen language of the contract.
Solutions:
- Complete description of XY (lengthy and time consuming)
- No translation, but referral to concept in original language (better)
2. Translation but different meaning of the legal concept in one language into the language of the contract.
Solutions:
- If comparable other instrument in target language is available, use this.
- If no comparable other instrument in target language is available, treat as a “non-translatable”.
3. Translation but various meanings of the legal concept in one language into the language of the contract or into another legal concept.
Solutions:
- Define as per corresponding sub-concept of target language.
- Treat as non-translatable.
How should legal drafters deal with cross-system contracts to avoid misinterpretation?
Use original legal terms with explanations, avoid direct translations, and define terms clearly.
Reference source legal systems if needed.
What are some recommendations for style related to contract drafting?
- Use short and simple sentences
- Clearly state rights and duties
- Be precise (especially with time and deadlines)
- Avoid passive sentences
- Beware of pronouns (“he”, “she”, “they” or “it”, but instead “seller”/”buyer”)
- Minimalize punctuation
- Provide examples to steer interpretation
- Be consistent in terms of definitions and usage of terms
- Only scarcely use hyperbolic writing
- Make document readable
What are three general recommendations for contract drafting?
Use model contract, specific for the industry, which match the governing law used in the country of interest.
Visualize the entire contract lifecycle: From goods production to the end of warranty duties (e.g. five years into the sales).
- Production: E.g. Force Majeure (common law).
- Storage:
- Delivery: E.g. INCOTERMS.
- Conformity:
- Warranty/liability:
- Payment: Transfer risk (INCOTERMS), currency risks and default risks.
Anticipate possible future events, especially possible future disputes.
Define ‘Contract revision’.
Revision is about taking different cross-sectional views of the contract.
Revision of legal provisions:
- Missing or superfluous terms?
- Interpretation?
- Outdated or new developments?
- Obligations and consequences for breach?
- Applicable custom and trade usage?
Revision of language:
- Coherence
- Definitions
- Style
- Translation
How do traditional interpretation approaches in Civil Law and Common Law differ in contract revision?
Civil Law focuses on the understanding of an objective third party and usage.
Common Law emphasizes the literal meaning and the parties’ intention (Four Corners Rule). Common Law also includes rules like contra proferentem and the parole evidence rule, which are not typically used in Civil Law.
Both systems use expressio unius and ejusdem generis to guide interpretation.
Define ‘contra proferentem’.
A legal interpretation rule used in contract formation. It means that if a contract term is ambiguous, the interpretation will go against the party that drafted it. This rule encourages clearer drafting and protects the party with less control over the contract wording—often the weaker or non-drafting party.
Define the ‘parole evidence rule’.
Rule in contract formation, which means that once a written contract is finalized, no external oral or written statements made before or at the time of signing can be used to change or add to the terms of that contract.
This rule ensures that the written contract is treated as the complete and final agreement between the parties.
What is the key development in the interpretation of contracts under Common Law, and how does it align with Civil Law?
A major development in Common Law is the growing recognition of the objective third-party standard—previously central only in Civil Law.
This shifts focus from strict literal meaning and party intention to how a reasonable outsider would interpret the contract, creating convergence between Civil and Common Law approaches.
What are the key components of a contract revision checklist?
Check formal requirements, parties’ roles, missing or unclear terms, governing law, enforceability, trade usage, and alignment with current legal standards.
What is the role of legal software in contract drafting and revision?
Automates document creation and review, ensures consistency, reduces human error, helps manage contract lifecycles efficiently.
In contract negotiations what are two types of business relationships to be obtained?
- A fair and balanced business relationship
- An unfair and unbalanced business relationship
What are the goals in a fair and balanced business relationship?
Translate business goals of both parties into “legal language”
Provide security (for both sides) through legal provisions that these goals are achieved in the end
For these ends, the legal provisions of a contract…
- should provide clarity and avoid ambiguity
- should be valid and enforceable and
- should not contradict the mandatory provisions of the law governing the contract
What are the goals in an unfair and unbalanced business relationship?
Translate business goals of the superior party into “legal language”
For this end, the legal provisions of the contract could include:
- unenforceable, invalid clauses designed to intimidate the (inferior) counterparty and to give the counterparty the impression of a fulfilment of their interests (which later proves to be wrong)
*invisible terms (gaps, implied terms, trade usage) which are purposefully made use of by one party and in order to be exploited later
Outline some cultural differences in contract drafting and negotiation?
Long-term relationship vs. deal-based approach:
- Good faith and contractual balance vs. precise performance at the risk of imbalance
- Flexible interpretation vs. binding nature of contract
Knowledge of cross-cultural differences is needed
What are the four strategies in contract negotiation?
Negative Strategic Posturing: No real intent to make a deal; aims to delay or gather information.
Positive Strategic Posturing: Parties want a contract but act opportunistically, hiding or misrepresenting information.
Collaborative Strategic Posturing: Both parties work transparently to reach a fair, balanced agreement.
Proactive Contracting: Focuses on long-term value, risk prevention, and mutual trust through open communication and planning.
What is ‘negative strategic posturing’ in contract negotiation?
At least one party has no interest to consummate a contract.
Possible objectives:
- to influence a third party to enter into negotiations
- to deter a third party from entering into a market
- to procure information from the counterparty
Countermeasures:
- Usage of Letter of Intent (LOI) / MoUs to document negotiation process
- Usage of Non-Disclosure Agreement (NDA) to prevent the unauthorized usage of confidential information
