For reasons yet unknown, many entrepreneurs believe that it does not take much effort to draft a contract. For example, you can find it online and download or, better yet, buy a book with a fine title “100 Contracts for All Intents and Purposes”, and pick one from it. Sometimes, the clients come to us, asking for a “contract template.” You have to patiently explain that there is no such thing as contract template, just like there is no “medical record template” or “degree thesis template.” Somehow neither the doctor nor the patient ever thought of making a carbon-copy medical record. Everyone realizes that each case is unique, and so one should use the same approach when dealing with agreement drafting.
For example, let’s take a look at the supply agreement. Contractual terms may vary greatly depending on what is supplied, meat or oil products, most advanced equipment or brick. And we are talking only about the subject of the contract. It should also be noted that a well-drafted contract is not just about a classical trio, i.e. subject, price and term. This includes a number of other essential terms and conditions which can both protect and put an entrepreneur at risk. This is where the all-too-common individual approach – that everyone talks about without understanding the essence of it – works.
So, what does framing of the contract start with and what stages does it include?
1. Defining task: at this stage, we determine the type of contract that the client needs, agree upon a subject and ultimate goal, as well as other necessary matters (contract price, terms etc.).
2. Laying down conditions.
First of all, these are compulsory conditions stipulated by law. The absence of even one of them can result in invalidation of the entire contract.
Secondly, there are other important conditions that should be included in the contract to ensure additional protection of the client. For example, the Civil Code stipulates that if the lessee fails to return the leased property in case of contract termination, he/she shall pay a penalty amounting to double lease payment for the relevant delay time pursuant to Part 2, Art. 785 of the Civil Code of Ukraine. So, if our client is the lessee, under the law we may include contractual provision, reading “Part 2, Article 785 of the Civil Code of Ukraine shall not apply to this Contract.”
Thirdly, it is the use of practical experience. For example, if our client and his/her contractor are VAT payers, forming of a tax credit by our client directly depends on due issuance of the tax invoice by the counterparty. Therefore, the contract should have the following provision, “Should the Party 2 fail to provide duly executed tax invoices under VAT (including tax invoices entered into the Single Register of Tax Invoices), for which reason Party 1 loses the right to a tax credit, Party 2 shall pay Party 1 a fine amounting to…” etc.
3. Handing over the draft contract for client’s approval.
This is a universal algorithm that allows drafting a contract which is not only legally accurate, but thought out to the last detail.