How To Write A Legal Contract
Given our fear of being liable, one could be forgiven for thinking that a contract needed to be stuffed with legalese and constructed by a lawyer to be considered legal. However, that is simply not the case. There is no requirement for a contract to be overly complicated. In fact, the less ambiguous the better.
In plain terms, a contract is just a legal agreement that serves the interests of at least two consenting parties. People tend to get bogged down in the details and often seek legal counsel out of fear of getting a contract wrong. Typically, concerns can easily be cleared up at a fraction of the cost by using innovative software for legal documents. To put your mind at ease, here is our guide on how to write a legal contract.
Elements Of A Contract
An Offer: For a contract to be valid, there must be a clear offer of something for something else. E.g., Shop Local Inc will pay a fixed fee of $10,000 for the installation of a new CRM by Automation Autonomy Ltd.
Consideration: The exchange of value is known as consideration. In our example, the assets exchanged are $10,000, the CRM, and the expert installation service. A court will look for a valid exchange of things of value and if this cannot be proven, your exchange could be considered a gift.
Mutual Assent: Also considered the meeting of the minds, mutual assent requires both parties to have been part of the negotiations and in specifying the details.
Capacity And Intention To Contract: Are both parties legally allowed to participate in the contract? Did both parties intend for a contract to be created? People under 18, with a disability, or under the influence of intoxication cannot agree to a contract. Likewise, one cannot decide that a verbal discussion was a “verbal contract” without a mutual agreement to create a binding contract.
Acceptance: Signing on the dotted line. Acceptance can only be made to the terms laid out in the contract as stated. Acceptance cannot be offered to terms or conditions outside the contract as both parties are only bound to what is on paper.
How To Write The Contract
Start with the Basics
It is easy to overlook the basics of a contract. Everyone already knows the details but they need to be explicitly stated. Both parties need to be named. Is it the person or business entity bound by the contract? “This contract is between Shop Local Inc of Belgard Ave., Camden PA and Automation Autonomy Ltd., Hamilton Ave, Trenton”.
Clarify The Considerations
For the contract to be valid, there must be an exchange of assets of value. This should be clearly articulated. Exactly what is being exchanged. Be specific about:
- Dates of exchange. Expected delivery dates
- Milestone payments. E.g. A payment of $3000 will be made upfront. $3000 for install and $4000 for training
- Make, model, size, quantity, and colours of products
- Service details of when, where, and how work will be carried out
- And all other specific details items and services to be exchanged
Clarity is key. Keep sentences short and break the terms up into paragraphs. Only use legalese where it is explicitly required. Courts take the view of what a layperson would interpret from the contract. If the average person cannot understand the exchange the parties expect, there is too much ambiguity.
An addendum allows parties to add an overlooked item or define complex arrangements in a contract before, during, or after acceptance. Addenda will introduce a new feature of the contract and therefore, must be signed and accepted by all parties. This should not be confused with an amendment which is an alteration to the original contract.
In many cases, the exchange might involve items guarded by intellectual property agreements or patents. If either party would be negatively affected by the public release of details, an NDA should be considered. Mutual NDAs require all parties to keep the details of the exchange private. Where one party will use the intellectual property of the other, a confidentiality clause may be appropriate.
Nobody intends for disputes to arise but the experience would say to prepare for them regardless. A contract should state the resolution mechanisms both parties must engage in the event of a disagreement.
While not specifically required to make a contract legal, an indemnification clause can save legal expenses down the line. If one party cannot maintain the terms of the contract, specific compensation and damages should be laid out. Similarly, either party can request that they are not held liable for the failure to deliver the contract terms in full.
Terminating the Contract
All actions that result in a contract termination should be specified in the contract including success and failure to deliver the terms. Reasons for contract termination include:
- Completion of work
- End date of a contract reached
- Impossibility of performance
- Mutual mistakes
- Breach of terms
- Breaking the NDA
In cases where one party signs thousands of contracts a year, unintentional terminations, automatic renewals, or failure to check on the progress of a contract can easily occur. For businesses of this size, using legal software like LOIO can help to maintain awareness of all terms and important dates. Missing opportunities to renegotiate can be a huge loss of value and size inefficiency.
Contracts don’t have to be as intimidating or as confusing as they are made out to be. The most critical thing to remember when writing contracts is to maintain clarity and precision.
Review the contract and think about what the average person would believe after reading through your document. Would the same meaning be derived from every reader of the contract? If so, the contract is clear from misinterpretation and provided the offer, consideration, and acceptance elements are met, your contract should be legal.