When drafting a contract, it’s often necessary and useful to use cross-references to another part of the contract or a related document. This cuts down on redundancy and helps with consistency. But imprecise or problematic cross-references can make a mess of things. Here are some tips for handling internal and external cross-references.
Use hierarchical section numbers and informative section headings. The consistent use of numbers and descriptive headings facilitates cross-references to specific language in the agreement. Numbering each section makes it easy to cross-reference to the number. It’s a good idea to also include the heading language to make the cross-reference clearer. For example, a covenant that states: “Subject to section 7 (Restrictions on Assignment), Licensee shall …” is clearer than “Subject to section 7, Licensee shall …” Never use bullet points in drafting a contract. Why? Because you can’t readily cross-reference bulleted items. In addition, you make it more difficult for a court to refer to a single item in interpreting the contract.
Give each paragraph of the agreement its own designation. Section numbering isn’t enough; give each paragraph in the section its own designation. For example, assign a separate letter to each paragraph of section 7, e.g., paragraphs “7(a)” and “7(b),” because a cross-reference to “subsection 7(b)” is more precise and thus more helpful than a cross-reference to “the second paragraph of section 7.”
Handle cross-references to related documents very carefully. Cross-references can be used in related documents, such as multiple agreements for a single transaction, an amendment to an agreement, or a letter referring to an agreement. But such cross-referencing, especially if the related agreement isn’t attached as an exhibit or a rider, can lead to problems. Consider the following:
- Does the merger clause in the cross-referenced agreement state whether it supersedes the primary agreement, or vice versa?
- Does cross-referencing related agreements raise the issue of cross-defaults?
- Does the primary agreement clarify its relationship to the cross-referenced agreement such that a court would be willing to look outside the four corners of the primary agreement if litigation arises?
- Would subsequent modifications to a cross-referenced agreement render the cross-references in the primary agreement inaccurate or obsolete, or vice versa?
Pay attention to formatting. When drafting contracts, pay attention to formatting issues because they can undermine all the efforts you have made on the substantive provisions.
Get practical advice on contract format, appearance, and introductory information in CEB’s Drafting Business Contracts: Principles, Techniques and Forms, chap 5.
Other CEBblog™ posts you may find useful:
- Contract Drafting 101
- Review This Before Drafting a Contract
- 4 Steps to Drafting a Contract to Your Client’s Advantage
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