Contracts are legally binding agreements that define the rights, obligations, and expectations between parties. Examples of contracts include employment contracts, rental agreements, sales contracts, service agreements, non-disclosure agreements, partnership agreements, construction contracts, licensing agreements, lease agreements, and loan agreements.
Contracts bring clarity, protect interests, and promote fair relationships by outlining terms, providing legal remedies, managing risks, and ensuring compliance. How you write a contract plays a vital role in preventing misunderstandings, resolving disputes, and establishing trust.
This article will cover the basics of how to write a contract and other important details, including.
How to write a legal contract?
When writing a legal contract, there are several key things to know. Contract complexity and specific requirements can vary depending on the nature of the agreement and local laws.
It’s important to seek professional legal advice when dealing with significant or high-stakes agreements. A qualified attorney can provide specific guidance tailored to your unique situation and help ensure your contract is valid, enforceable, and protects your interests.
Here’s a step-by-step guide on how to write contracts:
Step 1: Identify the parties involved
Identify the parties who will be entering into the contract. Clearly state their full legal names, addresses, and other pertinent information.
Example: “This Contract is entered into between Jane Smith, residing at 123 Main Street, Anytown, USA, hereinafter referred to as 'Party A,’ and John Doe, residing at 456 Elm Street, Anytown, USA, hereinafter referred to as ‘Party B.’”
Step 2: Define the purpose of the contract
This section should explain the intent and goals of the agreement and what each party expects to gain from it.
Example: “The purpose of this Employment Contract is to establish the terms and conditions of employment between Party A, the employee, and Party B, the employer, for the position of Graphic Designer”
Step 3: Include the Terms and Conditions
List the specific terms and conditions that both parties agree to abide by. It includes the rights, obligations, responsibilities, and any limitations or restrictions related to the contract.
Example: “Party A agrees to provide graphic design services as per Party B’s specifications and requirements. Party B agrees to pay Party A the agreed-upon amount within 30 days of receiving the final deliverables.”
Step 4: Specify the scope of work or deliverables
If the contract involves providing goods or services, clearly outline the scope of work or deliverables. Describe what will be provided, the quality standards, timelines, and other relevant information in detail.
Example: “Party A will create a custom website design consisting of a home page, about page, and contact page mockups. Party B will provide all necessary content and materials to develop the website.”
Step 5: Define payment terms
Specify the payment terms, including the amount, currency, due dates, and any additional payment-related details such as late fees or interest charges.
Example: “Party B shall pay Party A $2,500 for the graphic design services rendered. Payment shall be made in two installments: 50% ($1,250) upon signing this Contract and 50% ($1,250) upon completion and delivery of the final website mockups.”
Step 6: Address confidentiality and non-disclosure
If the contract involves sensitive information, intellectual property, or trade secrets, include a section that addresses confidentiality and non-disclosure. Clearly state the obligations and responsibilities of each party to protect confidential information.
Example: “Both parties agree to treat confidential information exchanged during this Contract as strictly confidential. Neither party shall disclose, share, or use any confidential information for any purpose other than the fulfillment of this Contract.”
Step 7: Include dispute resolution mechanisms
Specify the methods to resolve disputes that may arise during the contract term. It may include mediation, arbitration, or litigation. State the jurisdiction and applicable laws that will govern the contract.
Example: “In the event of a dispute arising from this Contract, both parties agree to first attempt to resolve the matter through mediation. If mediation fails, the dispute shall be submitted to binding arbitration in accordance with the rules of the American Arbitration Association.”
Step 8: Include governing law and jurisdiction
Clearly state the governing law that will apply to the contract and the jurisdiction where disputes will be resolved. It helps establish the legal framework within which the contract operates.
Example: “This Contract shall be governed by and construed in accordance with the laws of the State of California, USA. Any disputes arising from this Contract shall be subject to the exclusive jurisdiction of the state and federal courts located in Los Angeles County, California.”
Step 9: Include termination and amendment clauses
Outline the conditions under which the contract can be terminated by either party and the process for making amendments to the contract. It provides clarity on how the contract can be modified or ended.
Example: “Either party may terminate this Contract with written notice of 30 days to the other party. Any amendments or modifications to this Contract shall be made in writing and signed by both parties.”
Step 10: Review and revise the contract
Thoroughly review the contract for accuracy, clarity, and completeness. Ensure that it accurately reflects the intentions of both parties and that all important details are included. Make any necessary revisions or edits.
Step 11: Seek legal advice
Consider seeking legal advice to ensure the contract complies with applicable laws and regulations. An attorney can provide valuable insights and help protect your interests.
Step 12: Obtain signatures
Make multiple copies once the contract is finalized and obtain all parties’ signatures. Signatures indicate that the parties have read, understood, and agreed to be bound by the terms and conditions of the contract.
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Common mistakes to avoid when writing a contract
When writing an effective contract, it is necessary to state all terms and provisions agreed upon by the parties. It is also a good idea to avoid common mistakes that may increase the potential risks of disputes.
- Lack of detail: Please include specific project details to avoid confusion and disagreements between the parties.
- Not understanding legal terms: Using legal jargon and technical terms that are unfamiliar to all parties can lead to misunderstandings and potential disputes.
- Failure to include verbally agreed-upon terms: Include all verbally agreed-upon terms in the written contract to avoid any surprises later.
- Lack of clear dispute resolution protocol: Not establishing a clear protocol for resolving disputes in the contract can lead to disagreements, delays, and high legal costs.
Essential elements of an effective contract
In business, contracts act as a representation of obligations in writing. To be enforceable, legally binding contracts must contain five essential elements.
- Offer
There must be a clear offer made by one party and an unequivocal acceptance of that offer by the other party. It establishes mutual assent and creates a valid contract.
A contract’s offer primarily encompasses the duties and responsibilities of each party. It should also demonstrate an exchange of value, such as money or a desired action or outcome.
- Acceptance
Acceptance is the agreement to the specific conditions of an offer. Acceptance in a contractual agreement can take three forms such as:
- Conditional acceptance: Acceptance of an offer that is subject to certain conditions being met before the contract becomes binding.
- Acceptance by action: Acceptance of an offer by performing an action or carrying out the requested tasks rather than through explicit verbal or written communication.
- Option agreement: An agreement granting one party the right to buy or sell something at a specified price within a defined timeframe, providing flexibility and allowing for future decision-making.
A counteroffer is considered a termination of the original offer.
- Consideration
Both parties must provide something of value, known as consideration, in exchange for the promises made in the contract. Consideration is essential for a contract to be valid and enforceable. It need not always be a financial investment and can be something of value, such as goods, services, and promises. In contract law, there are two types of consideration:
- Executed consideration: A type of consideration that has already been performed.
- Executory consideration: A type of consideration that is promised to be performed in the future.
- Capacity
Under contract law, all signatories must clearly understand the contract’s obligations, terms, and consequences before signing. This understanding is known as ‘legal capacity.’ It means they must be of legal age, mentally competent, and not under undue influence or duress. The legal document may be void if one party cannot enter into the contract.
- Legality
A contract must include specific terms, and the ability to fulfill the essential terms of an agreement must be guaranteed. All contracts are subject to the law of the jurisdiction in which they operate, including any local, state, and federal laws and ordinances. The contract must have a lawful purpose and cannot involve illegal activities or go against public policy.
A contract is not legal under certain circumstances, such as undue influence and misinterpretations, unconscionability, violation of public policy and illegality, and error in the contract.
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