Counter parties will usually define the key terms and the purpose of an agreement before drafting a new contract. However, most contracting parties don't define what the key terms of the agreement are in the context of a contract which can lead to unnecessary amendments and delays at the contract negotiation stage. The key reason is that contractual terms have commercial consequences which might not be apparent in a simple heads of terms. A contextual approach to contract drafting helps parties understand the implications of a term on the agreement which in turn ensures a common interpretation of the contract at the drafting stage. This article explains how businesses can adopt a contextual approach to contracting and the benefits for their organisation.
What are contextual contracts?
A contextual contract is an agreement which provides context to the contract terms at the contract drafting stage. Whilst parties might agree on a purpose for the NDA, they might not appreciate what the purpose means in the context of the written contract. With a contextual agreement, when defining the purpose of a Non-disclosure agreement, parties can see where the purpose of the agreement fits in the scope of the NDA and the clauses affected by the purpose. This ensures that the discloser and recipient of confidential information understand the impact of the purpose on the contractual provisions. Because counter parties have context from the beginning, they can make changes to the purpose before the contract draft is finalised.
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Why interpreting contracts is easier with context
Contract law is complicated, especially for non-lawyers. Drafting contracts contextually ensures that mistakes don't happen at the drafting stage because the contract drafter can see in real time how the selected terms impact the agreement. Changes can then be made in realtime if the written contract is different from what the drafter was expecting. For example, a contract creator can easily change the scope of a Non-disclosure agreement from a one-way to a mutual NDA if they weren't sure what the difference between the two agreements was when they had to choose the scope. Understanding the impact of terms on the language and meaning of clauses at the drafting stage helps prevent amendments and delays later on.
The benefits of a contextual approach to contracts
Contextual contracts empower business users to understand in real-time what their contract will mean from the moment they set terms. The key benefits of creating contextual contracts are that businesses make fewer mistakes at the drafting stage, counter parties spend less time negotiating the legal wording of clauses and contract managers can locate key contract terms faster post-signature. Creating contextual contracts is easier thanks to platforms like Legislate. Contract creators can see their terms being inserted into the contract in real-time and jump to the sections which are affected by the terms. Contract terms are grouped under headings which make commercial sense in order to facilitate their contractual interpretation. This approach lowers the complexity of contracts which means that business users can create contracts without needing to get legal involved at every single step. To start reaping in the benefits of contextual contracts, sign up to Legislate today!