Which Contract Form Should You Use?

152110530Deciding which form to use for your agreement will depend on several factors, including who the parties are, what they want to accomplish, their level of sophistication, and the amount of time and money they’re realistically willing to invest in the transaction. Here are five types of agreements to consider for your next client.

Enforceable agreements can come in several forms, including:

  1. Letter agreement outlining the major points of the parties’ transaction. This type of agreement, usually sent by one party, should be acknowledged and agreed to or accepted by the other party or parties. It will lack the details of some of the other forms, making it harder to interpret and enforce if disputes arise.
  2. Printed form agreement. Many stationery stores sell printed form agreements for a variety of common transactions, such as leases or property transfers. These forms, by design, seldom address unusual or specific provisions that the parties may want. Counsel can supplement these form agreements for clients who don’t need a more tailored agreement, but the cost and inefficiency of supplementing a printed form agreement may make a custom-drafted document a better choice. And keep in mind that written terms generally control printed terms, and custom-drafted printed terms control printed form terms. CC §1651; CCP §1862. The best practice is to include in any second or supplemental agreement (or an amendment or attachment to a previous or contemporaneous agreement) a reference to that other related agreement and designate which document is controlling if a conflict should arise.
  3. Custom-drafted agreement. This document, prepared by counsel, is usually the most time-consuming and expensive to prepare. But over the life of the transaction, the cost may be justified by the complexities of the transaction, the need to tailor the agreement to the parties’ specific needs, and the ability to service the contract without further modifications.
  4. Oral agreement. Although entering into an oral agreement is generally is not good practice, an oral agreement is binding absent application of the Statute of Frauds.
  5. Electronic agreements. An agreement created and transmitted by electronic means may not be denied legal effect or enforceability because it’s in an electronic form; an electronic signature satisfies the legal requirements for a signature, including the Statute of Frauds.

You may not always have the choice in deciding which type of agreement to use, because specific types of agreements may be required for transactions governed by special laws and regulations. For example, special laws apply to commercial transactions, such as secured transactions (Com C §§9101–9709) and leases of goods (Com C §§10101–10600). And consumer transactions are governed by, e.g., the Consumer Credit Protection Act (15 USC §§1601–1693r), the Unruh Act (CC §§1801–1812.20), and the Credit Card Act (CC §§1747–1748.31).

The two most important factors to consider when deciding how detailed a written contract should be are (1) the trust between the parties and (2) the value of the agreement. Parties who have little experience with one another or who inherently distrust each other will appreciate a lawyer who has anticipated the possible turns in their agreement. When the value of an agreement goes up, the parties generally expect that some provisions of the written contract will be more detailed, and many optional provisions will be included. The greatest benefit that the lawyer can serve is to accurately write out the important deal points and then identify a way for the parties to cooperate when problems arise.

Before you start drafting any contract, there are several preliminary considerations and decisions to make. CEB takes you through them in Drafting Business Contracts: Principles, Techniques and Forms, chap 3. Because electronic contracts and electronic signatures are rapidly replacing paper contracts signed in ink, make sure you’re up to speed in this area by viewing CEB’s program E-Contracts and E-Signatures and checking out the chapter on electronic contracting in CEB’s Internet Law and Practice in California.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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