Contract Language (All You Need To Know)

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What are the best practices you should know about?

How do you ensure your contractual obligations are clear?

In this article, we will break down the notion of contract language so you know all there is to know about it!

We will first see what are the legal verbiage in a contract, contract language basics, how the contractual terms should be structured, some example of how contracts are worded and more!

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Contract language 

Definition 

Contract language represents the language, wording and terms used to describe the parties’ obligation in a contract.

The words used to define contractual obligations can define broad obligations or even restrictive obligations.

The way you draft your contract and the words you use in combination with one another will convey the legal rights and obligations of the parties enforceable in a court of law.

Legal obligations 

A contract is a legally binding instrument granting the contracting parties some rights but also some obligations.

Depending on how a contract is worded, the obligation of a party may be affected as a consequence.

Some contracts can be very short and simple while others can be extensive and highly complex.

If your contract language is clear, the obligations stemming from the contract will be clear.

If your contract language is ambiguous, then you may have a higher chance of running into trouble due to potential interpretation issues.

All business owners need to sign a contract and deal with contract language on a regular basis.

This makes it important to know how contracts are drafted and the typical terms and conditions in them.

Variations 

Many refer to contract language using the following terms:

  1. Legal verbiage 
  2. Contract verbiage 
  3. Legal wording 
  4. Agreement language 
  5. Contract legalese 

These terms refer to the same thing: contract language.

Contract language basics

A contract is a legally binding and enforceable agreement between the contracting parties.

The contract language or the “terms and conditions” used to express the rights and obligations of the parties can have a significant impact on their legal obligations, risk exposure and potential success or failure of the contract.

Clear contract language 

To start with, for a contract to be clear, the language used must be clear.

In other words, the author of the contract must ensure that each contractual clause is drafted in simple and plain language so it can easily be understood.

For the contract lawyers out there, as a word of advice, it’s best to avoid using Latin terms and phrases or legal jargon in your contracts so to ensure that the parties understand the obligations they are committing to.

Clauses to complement one another 

The contract should be written in a way that each section of the contract complements the other sections to avoid any conflicting obligations.

For example, if one clause says that Party A must do X and another clause says that Party A must not do X, then you’ll run into interpretation issues that may end up being very costly.

Contract structure

Your contract should be structured in a way that the specific terms and conditions are clear depending on the nature of the contract you are singing.

For example, every contract will have the following basic structure:

  1. Title 
  2. Party identification 
  3. Preamble 
  4. Definitions
  5. Specific contract language
  6. General contract language 
  7. Signature block
  8. Annexes, Exhibits or Schedules 

If you are signing a sales contract, the language of your contract will reflect a sales-related transaction.

If you are signing an employment contract or a general business contract, your contract language terms will be adapted accordingly.

Contract structure basics 

Let’s dig a little deeper into the contract structure basics so you know exactly how to frame your contract properly.

A contract will generally have some aspects that are general and common to many different types of contracts also called “boilerplate language” while some other aspects will be specific and related to the specific nature of your contract.

For example, a sale of goods contract will have specific terms and conditions with respect to the actual goods being sold and will have some general terms and conditions as well.

What are the typical sections of a contract?

Contract title 

A contract will most often have its title right at the top of the first page.

The title will give a high-level idea of the nature of the contract being signed.

For example, you can have:

  1. Purchase of Equipment Agreement
  2. Professional Services Agreement
  3. Subscription Services
  4. Lease Agreement 
Contract language title
Contract language: Title

Identification of parties

Then you have the identification of the parties.

Individuals are referred to by their name and address.

Business entities are referred to by their official name and DBA, address, the law of incorporation or formation and name of the authorized representative.

Here is an example of a contract between an individual and an entity:

Contract language: Party identification
Contract language: Party identification

Preamble 

The preamble is a section where you have the “WHEREAS” provisions or somethings “CONSIDERING” provisions.

The “whereas” provisions provide a description of the purpose of the contract or some background information to put the contract in context.

Here is an example: 

Contract language: Whereas
Contract language: Whereas

Defined terms 

The words of a contract should be interpreted based on their meaning in the English language.

However, in some cases, the contracting parties may want to change, tweak or modify the definition of a certain word.

To change the definition of a word in a contract, you must first define the word in question and subsequently refer to that work by capitalizing the word. 

For example, the term “affiliate” is defined as follows in the English language (Merriam-Webster Dictionary):

to associate as a member
Author

In a contract, the term affiliate can be defined between the parties as: 

any entity which directly or indirectly controls, is controlled by, or is under common control with the subject entity
Author

When the contract defines the term affiliate, then any subsequent use of the defined term will be capitalized (“Affiliate”).

Specific contract language

Specific contract language relates to specific aspects of your contract depending on its nature.

For example, in a professional services contract, specific clauses will need to be included to define the nature of the services, acceptance testing, the deliverables and so on.

In a software-as-a-service contract, the special provisions will include things like hosting provision, data processing, use and access rights and so on.

General contract language 

The general contract language or terms are those provisions that apply to all types of contract regardless of their nature.

For example, a contract may have:

  1. Disclaimer clauses
  2. Indemnification clause 
  3. Governing law clause
  4. Force majeure clause 
  5. Notice clause 

These are referred to as “standard clauses” or “general terms and conditions”.

Signature block

The contract will be signed by the parties on the signature block.

The signature block is a space reserved to receive the signature of the parties.

Here is a typical signature block presentation:

Contract language: Signature block
Contract language: Signature block

Annexes, Exhibits or Schedules 

The last main component is the contract annexes, exhibits and schedules.

These are additional terms and conditions that parties can include in a contract.

Here is a brief description of each:

  1. The appendix is a supplementary document attached to the contract and supplements the contract 
  2. Annexure is something that is attached to the contract like an existing report but it is a separate document from the contract 
  3. Schedule is a list or statement detailing certain aspects of a contract and is an integral part of the contract 
  4. The exhibit is a stand-alone document or a document that is already in effect but it is not a substantive part of the contract (template notice, template agreement and so on)

Essential contract language 

To have a complete contract, you don’t need to have hundreds of pages of law wording, endless capitalized terms and thousands of defined terms in contracts.

Contract minimum language 

You can have a defendable and complete contract of merely a page or two.

Granted, the more your contractual obligations are complex, the more it is justified to have a longer contract. 

However, there is some legal verbiage for contracts that are essential:

  1. Identification of the parties
  2. Pricing (consideration for one party)
  3. Description of goods and services (consideration for the other party)
  4. Signature by an authorized representative 

Elements of a contract 

For a contract to be validly formed, there are certain elements of a contract that need to be observed such as:

  1. Parties need to be clear
  2. Parties must have capacity 
  3. Parties must exchange a consideration
  4. The objective of the contract is legal 
  5. There were an offer and acceptance 

This means that your contract should minimally identify the parties, have them state their capacity and authority to sign, detail the price and the nature of goods and services exchanged.

Contract wording issues

If a business or a person does not pay attention to the contract wording and language, it may end up with an unwanted surprise.

Unfortunately, in many instances, contracts are lengthy, verbose and with terms potentially conflicting or leading to confusion.

In that case, a contract can lead the contracting parties to misinterpret their obligations leading to a contractual dispute.

Here are some contract language challenges that are typically seen:

  1. Contractual clauses are conflicting 
  2. The contract is silent on an important aspect
  3. The terms of the contract are not clear

As a word of advice, the more the contract value is important for you or the nature of the contractual relationship is risky, the more you should consider hiring an attorney or contract lawyer to support you in the process. 

Examples of legal wording for contracts

Contracts can be written in different ways and have a different voice.

You can write an essay, a novel, a book or a poem, you are using English words but the tone is different, the message conveyed can be different and the interpretation can be different.

Contracts are the same.

Contracts will have their own tone if you are drafting a contract, a policy document, a declaration, an acknowledgment, formulating a prohibition, detailing an obligation or other.

Language of agreement 

When you are referring to the language of the agreement in a contract, you’ll see statements like:

“The parties hereby agree to subject the present contract to the laws of New York”
Author
“The parties agree to enter into a software subscription agreement upon the occurrence of the following conditions…”
Author

Language of prohibition 

When formulating a prohibition, you’ll see wording such as:

“Neither party shall disclose confidential information received during this contract”
Author
“Party A shall not reverse engineer the software”
Author

Language of discretion 

The language of discretion is seen in the following way:

“In Party A’s sole discretion can request a refund”
Author
“The client may elect to terminate the agreement”
Author

Language of obligation 

The language of obligation is when a party or the parties commit to an obligation of some kine:

“The Service Provider shall deliver the Work Product within 30 days”
Author
“The Client shall pay the invoice within 30 days from the receipt thereof”
Author
“The obligations in this agreement shall inure to the parties’ successors and assigns”
Author

Contract Language: Takeaways 

Using clear and concise language in contracts is important to avoid misinterpretation, legal disputes and costly mistakes.

The legal wording of contracts can have an important impact on the obligations of the parties and how those obligations are interpreted.

Properly understanding contract language will help you better understand your obligations and clearly appreciate your rights.

In addition to the proper language in a contract, your contract should also provide for some essential elements so it can be enforceable.

You need to make sure the parties are clearly identified, the considerations are outlined and the parties sign.

By following these contract language guidelines, you’ll minimize risk while you scale your business.