Contract Drafting/Review Tip

When writing or reviewing a contract, there is often a section called “Background,” sometimes labeled with an obsolete latin term. This section is mostly overlooked but it can be critical to the deal. It should be used to identify the material facts upon which the parties are relying. These facts are usually too numerous to list, but care should be taken to see that — to the extent possible — critical facts are identified. This makes it easier to avoid the contract if the underlying assumptions are wrong.

A well-written contract will also state which party bears the risk of mistake. Normally this should allocate some risks to one party other risks to the other party.

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