New York Small Business Law

Who should draft the Agreement?

Once you know there will be a written agreement, someone has to draft it.  Should it be your lawyer or the other party's lawyer?

Some say make your lawyer insist on preparing the first draft.  I tend to agree with that.  It gives you the opportunity to set the stage for later negotiations and control the language of the agreement.  Whether he or she will suceed with that request depends on which of the parties has more bargaining power and whether the other side sees an advantage in preparing the first draft.  If you are the party for whom most of the protections of the agreement are designed, for example a buyer in a purchase agreement or a lender in a loan agreement, you could argue that this fact alone should let your lawyer be the first drafter.

I think in many cases it is shortsighted to be afraid of the attorney's fees for the first draft and subsequent revisions.  In my experience, marking up a bad draft and checking on revisions often takes longer than drafting the whole thing in the first place.  In particular, because your attorney should have pretty good samples to start with and thereby minimize the time to produce a good first draft.

Of course, sometimes it is just a matter of who was faster to seize the opportunity.  A seller may present you with a draft very early in the negotiations and thereby make it harder to insist on a complete redraft.

Reviewing Agreements 101

1.    You’ve heard it before:  Get it in writing. No exceptions.  All terms should be expressly stated in the agreement, in detail.

2.    Make sure the parties to the agreement are properly identified.  You can save yourself a lot of trouble by checking the proper name of the other party and making sure it gets cited correctly in the agreement.  If the party’s name is “Dry Cleaner, Inc.”, just “Dry Cleaner” won’t do it.  You can check the names of New York entities in the searchable database of the Department of State, Division of Corporations .

3.    Insist on simple, easy to understand language.  If someone with no knowledge of your particular situation does not understand the meaning of the provisions of the agreement, chances are, there will be ambiguities and conflicts later on in the life of the agreement.  If necessary, have a person review the agreement who has no knowledge of law or the particular subject of the agreement.

4.    Agreements drafted by lawyers often start with “whereas” clauses which attempt to summarize the content of the agreement.  Notwithstanding, all terms and provisions of the agreement should be in the body of the agreement and not only in the “whereas” clauses.

5.    Review the agreement for consistency and completeness.  Think of possible scenarios that could take place in the course of your relationship with the other party and investigate the outcomes under the agreement.  This process often unveils gaps or inconsistencies that should be fixed.

6.    Review the agreement for mutuality.  If a provision offers some benefit or remedy to the other party, consider whether it would be fair to include the same benefit or remedy for you.

7.    Make sure all definitions used in an agreement are used consistently and correctly.

8.    Unless all the parties to the agreement are in one state and the subject matter of the transaction takes place exclusively in the same state, agree on a law to govern the agreement, for example: “This Agreement shall be governed and construed in accordance with the laws of the State of New York.”

9.    Agree on the kind of dispute resolution and the place of dispute resolution.  For example:

                “Any dispute, controversy or claim arising out of or relating to this Agreement shall be finally settled by arbitration in New York, New York, by a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect.  Judgment upon any award rendered in such arbitration may be entered in any court having jurisdiction.”

10.     Make sure the agreement is properly executed.  Your signature and the signature of a person who is authorized to sign on behalf of the other party must be on the signature line of the agreement.  If the agreement contains language such as this:

“the parties may execute this Agreement in counterparts, each of which is deemed an original and all of which constitute only one agreement, “

it is ok if you sign one copy of the agreement and the other party signs another copy of the agreement.  Both copies together will constitute the binding agreement.  Faxed copies are ok initially, but you should insist on receiving executed originals shortly after execution by facsimile.