The Anatomy of a Contract

The anatomy of a human being consists of complex structures that take dedication and years of study to comprehend. And though understanding human anatomy is necessary for a healthy life, many people don’t take time to appreciate even the “simple” processes that take place inside of them—because that’s for the doctor to know, right? Wrong. A little effort made towards understanding what creates a healthy life can prevent terminal diseases from taking root. A similar dichotomy occurs in contracts when some of the key stakeholders involved in the drafting process do not take the time to understand the contract’s anatomy.

Let’s take a look at the anatomy of a contract from a high level and three basic parts that take shape inside of Microsoft Word®. 

The Form

The “form” is the starting point for many drafters—it is (generally) a pre-typed, widely circulated, and, for the most part, judicially vetted document that is formed over years of trial and error. The oil & energy industry, for instance, has utilized “forms” for a hundred years, with the positive outcome being that, “[t]he development of the mineral lease has resulted in basic provisions that protect both the interests of the lessor and those of the lessee (see Revisiting the Mineral Lease by Joseph Giglio).”

Forms are a time-saving device and should not be scoffed at; however, forms are not designed to address every scenario the client might encounter—that is where the drafter must endeavor to understand when it’s time to introduce changes in the contract’s diet, if you will, in order to prevent disease in the final draft. 

The Addendum

In the oil & energy industry, the unique demands of state laws and regulatory environments, the requested changes by the other party during negotiations, and unique geographic and geologic challenges are some of the reasons that utilizing a “form” in this industry won’t work in every scenario. Therefore, because of these challenges, the addendum was created to allow for the simple addition of a handful of provisions to the form so that the drafter can avoid starting from a blank document.

Yet the addendum can also be a means of confusion and can create significant ambiguity—especially if the provisions in the addendum control the provisions in the pre-typed form. And since creating confusion in the contract is not why you were hired, it is important for the support team to understand the effects of the addendum and realize that simply adding a provision here and there will not always lead to a healthy contract.  

The Custom Agreement

The custom agreement is the third option in the drafting process and is brought to the forefront when the client or the drafter determines that a new document is necessary to secure the client’s needs. The benefit of a custom agreement is that it requires fresh thought, which is often lost when using a pre-typed form and an addendum. However, the custom agreement also entails a greater degree of risk as the drafter must conceive of every positive and negative occurrence that may arise. The custom agreement is the most complex piece of any contract’s anatomy as it requires quite a bit of time and patience and quite a bit of knowledge to confect. And if you are too cavalier, you’ll end up creating a contract that rivals the creation of The Modern Prometheus. 

Summary

The support team should never avoid the study and comprehension of a contract’s anatomy, and they should never assume that they have all the ingredients necessary to accomplish their tasks. Their job is to prevent an unnecessary illness in the final version of the contract. 

Collaboration among the Support Team is their chief assistant, as discussed in my previous article, but there is an escalating conversation towards utilizing artificial intelligence (AI) to speed up the collaborative process. Stay tuned for my final article in this series, and join me in the webinar that will discuss The Path to Best Practice with other drafting professionals.