How to write a legal contract

How to write a legal contract

Legally binding contracts help businesses or individuals avoid disputes. A contract specifies and defines the relative obligations and requirements of each party, typically determined after some discussion or negotiation. A legally binding contract requires no specific language, though courts generally construe the terms of a contract according to their plain and ordinary meaning. While no specific language is needed, the terms of the contract should be carefully thought out.

Review your notes from any discussions or negotiations. Double-check with the other party, if necessary, to ensure both parties are in agreement about the specific nature of a particular deal.

Begin drafting the agreement. Name each party in the introductory paragraph. Include any definitions, if necessary. For example, if “Work Product” is to be used in multiple sections and will have a specific meaning, it should be defined in the introductory section.

Specify the duration of the agreement, any timelines for performance and payment terms.

Describe the nature of the agreement. Be specific about each party’s obligations — what a party must do, such as provide a certain set of services or pay a certain amount of money at a specific time.

Include protective language, as necessary. Agreements often limit liability — often mutually — and include provisions to protect confidential information of the parties and noncompetition or nonsolicitation of employees.

Include applicable “boilerplate” information and signature lines. Contracts generally include a series of provisions that apply regardless of the nature of the agreement. These include notice provisions (the address where notices should be sent), whether an assignment of rights or responsibilities is allowed and the entire agreement clause indicating that the agreement represents the scope of the terms discussed.

Sign the agreement and have the other party countersign it. Signing the agreement indicates that each party accepts the terms of the deal.

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.

How to write a legal contract

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:

  • Quantity
  • Value
  • Dates of exchange. Expected delivery dates
  • Deposits
  • 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
  • A nd 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.

Adding Addenda

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.

Non-Disclosure Agreements

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.

Dispute Resolutions

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.

Indemnification Clauses

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
  • Fraud
  • 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.

Conclusion

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.

How to write a legal contract

Even in a world where people attempt almost any skilled task with the help of Google, YouTube, or Legal Zoom, people continue to ask: is this contract legal?

They aren’t asking (usually) whether the subject matter of the contract is permitted by law.

They really want to know: will what I’ve written be enforceable.

What makes it a contract legal

There are no magic words or phrases that make a contract enforceable by a court.

Enforceability is not acquired by adding “whereas” or “notwithstanding“.

A contract need only establish that one party made a promise to the other for consideration. Consideration is legalese for money. Or something else of value.

If I promise to join you for dinner next Friday, we have not created an enforceable contract, because there was no valuable consideration exchanged. My promise was gratuitious. You didn’t offer me anything but your good company over a meal.

If , on the other hand, I promise to speak at the event you’re planning, for which you’ll pay my fee, then we have an enforceable contract. I will appear and speak, and you will pay.

If either of us fails to do what we’ve promised, a court will attempt to give the injured party the benefit of the bargain.

So here are four tips on drafting a contract that does the job.

How to write a legal contract1. Write out the entire deal

The biggest failing of DIY contracts is incompleteness. They don’t describe fully the performance that is promised. They miss one of the essential terms:

  • who
  • what
  • where
  • when

If you hope that a judge will enforce a contract, it has to be written such that an absolute stranger to the deal, the judge, can read the contract and know what was agreed.

Too many self-drafted contracts don’t contain enough for a stranger to understand the deal.

Now, contracts with missing terms or ambiguities can be enforced. The contract is still “legal”. It’s just that there is a great risk that the missing terms as the judge fills them in don’t match the intent of the parties.

Enforcement of a fragmentary contract is far more expensive than had the contract been complete.

Enforcement of the unwritten terms becomes victim to what each party remembers but didn’t write down.

2. Flush out & write down assumptions

Often, the contracting parties each come to the table with a collection of assumptions about the arrangement. And each party assumes that the other party shares their assumptions.

Only, until you articulate your assumptions, you can’t test whether you are both, really, on the same track.

The unwritten assumptions form part of the deal. A good contract lays the assumption out on paper. If they aren’t shared when you sit down to write the contract, discussion or negotiation ensues.

The exercise of writing it out becomes as important as the writing itself.

3. Explore the “what ifs”

Well crafted contracts provide for the rights of the parties if things don’t go just as hoped when the contract was formed.

  • one party gets sick and performance is delayed
  • the materials aren’t available on schedule
  • the product doesn’t perform as anticipated

My rule of thumb is that the more money that is involved, or the more critical the contract is to your business, the more what ifs the contract should address.

If the consideration is $1000, it’s not worth extended negotiating or drafting to deal with remote possibilities. If it’s a $100,000, it’s worth more to lay out the details.

4. Provide for attorney’s fees

If you expect to enforce the contract in court if it’s breached, then your contract should provide that the injured party can collect its attorneys fees from the other in addition to any other damages.

Because the American Rule about attorneys fees says that each party pays their own attorney, win or lose. That is, unless the contract, or a statute, says differently.

Without a provision that grants the prevailing party the attorneys fees necessary to enforce the contract, it may simply be too expensive to go to court. Or, the cost of representation may consume the damage award.

Write on

With these principles in mind, you can draft a contract that is certain and enforceable. Strive for clarity and completeness.

And if this seem too daunting, take your draft to an attorney and pay only for review and repair of your document.

Because, at the end of the day, a contract only works if you can enforce it.

Entering into a contractual business relationship with another party is a serious task and should only be entered into after giving real thought about the relationship you want. Don’t fall into the trap of entering into agreements haphazardly or with complete trust of the other party. Even if it’s a family member (some would argue especially if it’s a family member), the business contract should protect your own business interests first and to do so you’ll need to familiarize yourself with some guidelines on how to write a business contract.

Generally, you will want to keep two things in mind when entering or writing a business contract:

  • Does the agreement address all of the possible situations which may arise? It’s also good to have contingency plans.
  • Do the provisions leave too much room for ambiguity? Contract disputes often arise over unclear terms or provisions.

Read below for tips on writing business contracts for your small business.

1. Get it in Writing

Anytime you enter into a business contract, you want written proof of the agreement as well as specific terms by which each party is bound. Oral agreements do occur in the small business context, but such agreements are difficult to enforce and people’s memories can be faulty and terms easily misremembered or misinterpreted. The first lesson in How to Write a Business Contract 101 is to always get it in writing.

2. Use Language You Can Understand

There’s no need to be intimidated by a false sense that a business contract has to be written in "legalese." The best contracts, particularly in the small business context, are written in plain English where both parties know exactly what they’re signing and what the provisions mean. Just be sure that the terms you write are specific as to each party’s obligations and the specific remedies that you have in the event that the other party violates the agreement. Also, keep in mind that certain terms have specific meaning in the law.

The easiest way to write a contract is to number and label each paragraph and only include that topic in the paragraph. By segmenting the contract into individual units, it will be more easily understood by the parties (and by a court should it come to that).

3. Be Detailed

The rights and obligations of each party should be laid out in specific language that leaves little room for interpretation. If you want delivery on the 15th of each month, use the specific number instead of writing, "mid-month". If you and the other party agree to a new term or decide to change an existing term in the agreement, be sure to add a written amendment to the contract rather than relying on an oral agreement. A court may or may not accept the oral agreement as part of the contract.

4. Include Payment Details

It’s important to specify how payments are to be made. If you want to pay half up front and the other half in equal installments during the life of the contract, state that, as well as the terms under which you will release payment. For example if you contract with someone to paint your business offices, you might want a provision stating that your regular payments are contingent upon a certain number of rooms being painted to your satisfaction. Whenever possible, list dates, requirements and methods of payment (cash, check, credit). Contract disputes often center on money, so you’ll want to be as specific as possible.

5. Consider Confidentiality

Often when entering a business contract, the other party will gain access and insight into your business practices and possible trade secrets. If you do not want the other party sharing this information, you should include a clause that binds the other party from disclosing your business information or information included in the contract to other parties.

6. Include Language on How to Terminate the Contract

Contracts aren’t meant to last forever. If one party continually misses payments or fails to perform their duties, you want to have a mechanism in place so that you can (relatively) easily terminate the contract. It could be a mutual termination agreement (when the objectives of each side have been met through the contract) or more likely an agreement that either side can terminate if the other side violates a major term of the contract, after giving proper notice of its intent to terminate.

7. Consider State Laws Governing the Contract

Contracts can stipulate which state’s laws will govern in the event there’s a dispute. If the other party is located in another state, you should include a clause that states which state laws will govern. If you don’t, and there’s a dispute, there may be a whole other legal argument (which costs more money) about which state’s laws should be applied to the contract. Avoid this headache and agree to it at the inception of the contract, when both parties are agreeable.

8. Include Remedies and Attorneys’ Fees

Especially if you believe that it’s more likely that you’ll sue over the contract (as opposed to the other party suing you), you might want to include a clause that awards attorneys’ fees to the winning party. Without this clause, each party will have to pay for their own attorneys.

9. Consider a Mediation and Arbitration Clause

In the event of a dispute, it may be advantageous to include a provision that requires the parties enter either mediation or arbitration, or both. Mediation is a voluntary process where both parties try to work out their issues directly, with the help of a neutral third party mediator. Any settlement must be approved by both parties. Arbitration is a more adversarial process where the arbitrator hears both sides’ arguments and makes a decision that both parties must abide by. It’s akin to a trial setting, but the arbitration process is much quicker and cheaper than litigating in court.

10. Make Sure Your Contract is Enforceable: Work with a Lawyer

Writing a business contract that protects your interests while balancing your business objectives is critical to your business’ success. But while you should get acquainted with the legal terms and processes for writing a contract, sometimes it’s best to have an attorney review your contract before it takes on the force of law. Get started today and find a small business attorney in your area.

Create a business contract and discover the fastest, easiest way to get the signatures you need to make it legal.

How to write a legal contract

What is a contract?

A contract is a binding and enforceable legal agreement between two or more parties. When parties sign a written contract or binding agreement, they voluntarily agree to act according to the rights and obligations defined in the document. Oral agreements are fine for small transactions, but everyone benefits from putting a contract in writing. Written contracts can ensure that your interests and other parties’ obligations are fulfilled according to the law, and they can spell out solutions if the contract is broken.

How to write a legal contract

Types of contracts

You can create a contract to formalize an agreement of any kind. These are the most common types.

Sales contracts

Every sale is a contract between the buyer and seller. The buyer promises to pay for a property or service (including intellectual property like music or images), and the seller promises to transfer ownership of that property (often guaranteeing its condition) or perform that service. Examples of sales contracts include a promissory note, a bill of sale, a warranty or security agreement, and a purchase order.

Employment contracts

These contracts set the terms of any type of employment, including services for hire from freelancers, consultants, or other independent contractors. These types of contracts may also contain termination agreements in case the employee is fired, as well as nondisclosure agreements (NDAs) and confidentiality clauses, which protect the company from liability and disclosure of sensitive information. An employment contract might also include a noncompete contract to ensure that a competitor company doesn’t poach that employee.

General business agreements

These include all aspects of doing business, such as partnership formation, capital investment, and the sale or purchase of stock. NDAs, indemnity agreements (which cover compensation in case of harm or loss), or waivers of rights are also considered business agreements.

Settlement agreements

Parties to a dispute might agree to a settlement to avoid going to court. Before a dispute arises, business partners might sign a contract promising to use alternative means of dispute resolution, like arbitration and mediation, instead of pursuing legal action. In arbitration, a neutral third party decides the outcome, while in mediation a neutral third party tries to bring the sides together so they can find a mutually satisfying agreement. These are most common in franchise contracts and business sale agreements.

Property contracts

These types of contracts include leases for commercial, retail, residential, and parking spaces. They often detail maintenance expectations, requirements like tenant insurance, the amount of a security deposit, and the terms and conditions for its return upon completion of the lease.

In fact, you make them every day, whether you realize it or not. Signing a receipt for your lunch? That’s a contract. Grabbing a ticket when you enter the garage? That’s also a contract.

Clearly you can make a contract yourself. You just need a few essential ingredients such as an offer (“I’ll make you a salad for $10”), an acceptance (“Sounds good to me”), an exchange of value (“Here’s $10 for your salad.”) and both sides intended to enter into this contract (e.g., “I’m not being forced to buy or sell this salad!”).

You can have both written and oral contracts. When it comes to your business, it’s likely that you’ll want most of your contracts in writing. So here’s the question:

Can you write your own contracts?

The simple answer is YES. You can write your own contracts. There is no requirement that they must be written by a lawyer. There is no requirement that they have to be a certain form or font. In fact, contracts can be written on the back of a napkin!

So, the better question to ask is:

Can you write a good contract on your own?

The simple answer again is YES. To be clear, if you had all the resources in the world, it would be easier to hire a lawyer to write one for you. But if you are like the majority of entrepreneurs who are starting a business or doing freelance work, hiring a lawyer is either going to be too expensive or too much of a hassle. So you’re left to write the contract yourself.

In order to write a “good” contract, it might be helpful to define what a “good” contract is. Assuming that the contract has all the essential ingredients (see above), a “good” contract is:

1. A contract you can understand completely.

It would be a terrible business decision to sign a contract in a foreign language that you can’t understand. The same goes for a contract that is in legalese where you have no idea what it’s saying.

There is no requirement that a contract be written in complete legalese. (That’s right. Read it again. If you don’t believe me, ask any lawyer.)

When you sign a contract, you’re creating promises that can have real world consequences – good or bad. If you sign something that you don’t understand, it’s as if you’re signing something with your eyes closed. Again, if you can afford a lawyer to translate the contract for you, that’s great. But a majority of us don’t have that luxury, so you need to make sure that YOU understand the contract completely.

Also, a contract is best used as a communication tool. So if either side cannot understand what the contract says, you’re planting a seed for miscommunication and all the potential ugly things that come with that. You want the contract to lay a foundation of transparency and trust. So make sure it is in a language you understand.

2. A contract that lays out your needs and expectations in this relationship.

You’re hiring a contractor and you expect frequent updates and the ability to provide feedback? Make sure it’s in your contract!

You’re being hired and you expect the client to pay for expenses such as gas and food? Make sure it’s in your contract!

This goes back to a contract being the best communication tool that you can have for your business. You can use the process of writing a contract to help you figure out what needs to be further discussed and agreed upon.

3. A contract that includes all the terms that you’ve agreed on.

Most contracts don’t need to be in writing. So why bother? Well, memories can be short, especially if and when a heated situation arises and emotions get involved. With a written record, there is less chance of a “faulty memory” coming into the discussion. Also, it’s immediate proof if you ever get into a dispute over the contract.

4. A contract that protects you and your business.

Think about the relationship you’re about to enter. What are the potential risks? For example, if you’re hiring someone to create something for you, is there any risk that there might be confusion on who owns the “thing” once it has been created? Make sure these risks are covered in your contract.

It’s impossible to predict everything and anything that can go wrong, but it’s still worth covering your bases on situations that you know are common in your business and industry. If you’re thinking, “I have no idea what is common in my business or industry,” the best source is to ask your fellow entrepreneurs and freelancers. Find forums where you can ask and crowdsource that information. Afterwards, make sure you include it in your contract!

In conclusion, can you write your own contract? Yes, you can. And the things that make a “good” contract don’t require you to write them in legalese or hire a lawyer. In the next few posts, we’ll cover how to get started and other helpful tips. Stay tuned!

Disclaimer: This article is for informational and educational purposes only, it is not legal advice. It does not create an attorney-client relationship between you and Lawgood, its founders, or the author. If you need legal advice, you should hire a lawyer.

How can Legal English and TOLES students write as elegantly and confidently as British lawyers? Legal English Language Training UK explains everything that you need to know.

Writing a great legal contract

There is no legal requirement for a written contract in English and Welsh law to follow a structure, but learners of legal English find that contracts follow the same format whether it a one-page Lodger Agreement (to rent a room in a shared house) or a 100-page corporate contract.

This article will help you understand the general structure of a contract but please bear in mind that this does not constitute legal advice and you should consult a competent lawyer before drafting or agreeing to any contract.

The structure of a standard commercial contract typically follows this pattern:

Preamble/The names and registered addresses of the parties

Representations and warranties

The preamble to a contract should include the title, date and parties to the agreement.

THIS SALES AGREEMENT made and entered into this [__] day of [month] [year] (the “Effective Date”), by and between, [First Party], a __________ limited company having its registered office located at [street address], [Country] (“First Party”), and [Second Party], (“Second Party”).

The sample contract then continues with Recitals that (i) provide an introduction to the agreement and why it is being entered into, and (ii) identify important terms and possibly third parties. Instead of the traditional recitals, some contracts have an introduction that serves a similar purpose. The recitals/introduction are not considered to be part of the agreement and are therefore typically not enforceable.

WITNESSETH WHEREAS, First Party is engaged in the manufacture of products described on Schedule A (the “Products”); WHEREAS Second Party is engaged in the business of marketing, selling and distributing products within [Country] (the “TERRITORY”); and WHEREAS First Party desires that Second Party market, sell and distribute the Products in the Territory;

The definitions section provides a definition of each individual term of the contract according to the person who drafted the contract (who is known as a draughtsman in the UK). An example of a definition can be seen below:

“Vehicle” means only the private passenger automobile or truck listed as the covered Vehicle in the Application, which is used solely for personal and private use.

Writing clear and precise definitions is essential to writing good contracts in legal English as this document may need to be interpreted by a lawyer in the future. The standard recommendation of our teachers is that you write definitions as you go through the contract and then cut and paste them into the definitions section. This seems the easiest way to get your point across without getting lost in the detail of the contract.

Conditions precedent are those conditions that need to be in place for a contract to be enforecable. They are considered to be outside the main terms of the contract. A simple example could be that you agree to deliver bottles of water to someone on the condition that they pay for the bottles to be in a designated place. If the bottles are not there then the water cannot be delivered.

The body is the heart of any contractual agreement and provides the reason why the contract was entered into. Topics such as the key terms of the agreement, the type and amount of “consideration” and the parties’ ongoing rights, duties and responsibilities are discussed in this section.

NOW THEREFORE in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto mutually agree as follows:

1.1 First Party hereby appoints Second Party as First Party’s exclusive partner in the Territory, and grants Second Party the exclusive right to promote, market, sell and distribute the Products in the Territory under First Party's Brand name(s) and Trademark(s).

1.2 Second Party accepts such appointment and agrees to use its commercially reasonable efforts to promote, develop and increase sales of the Products within the Territory.

1.3 Second Party shall not actively sell the Products in territories that (i) First Party allocated exclusively to a third party or (ii) First Party reserves for itself or an affiliate.

“Boilerplate” clauses are ready-made, all-purpose clauses inserted into many kinds of contracts. Despite being commonplace, boilerplate terms play key administrative roles. If something goes wrong and the parties to a contract end up in arbitration or court, a boilerplate term may be at the centre of the dispute. Our example includes two boilerplate terms, (i) force majeure, and (ii) governing law.

2.1 Neither party shall be in default hereunder by reason of any failure or delay in the performance of any obligation under this Agreement where such failure or delay arises out of any cause beyond the reasonable control and without the fault or negligence of such party.

2.2 The provisions of this Agreement shall be construed and the performance thereof governed in accordance with the laws of England and Wales, and the Parties agree to submit to the exclusive jurisdiction of the English courts in respect of any claims arising under this contract.

The difference between binding and non-binding contracts is important to know so that you can be as informed as possible when signing your next legal document. Legally binding contracts traditionally do not need to be paper documents, although they are still necessary in some cases, and a written contract is still generally recommended. However, contracts can also be concluded through telephone call agreements, faxes, e-mail exchanges and, in some States, even through texts. The decisive factor is not so much the form of the contract, but the fact that an offer is made by one party and accepted by another and that both parties accept it. If this happens, a breach of contract can be challenged in court. You may have noticed that words are binding and non-binding often appear when searching for legal documents, and you may have wondered what the difference is between the two terms. Whether a legal document is binding or not is an important distinction as it can affect whether that document is legally enforceable in court. Examples of legally binding contracts are all agreements that comply with the rules that govern a contract.4 min read Parliament has made legal exceptions to this rule. For example, many contracts concerning the lease, transfer, options on and sale of land, as well as employment contracts, as well as the transfer and licensing of certain types of intellectual property, must be drafted in such a way that each party is aware of its obligations and rights. Similarly, the written form of warranty contracts is required. Most business transactions are based on this exchange of promises. However, the act of work can also meet the rule of the exchange of value. For example, if you contract with a supplier to provide you with X and Y, but you decide to add Z to the final delivery vessel, the supplier can create a binding contract by actually doing Z – something you can`t dispute or get out of if you change your mind.

Whether you`re in contact with a customer, supplier or independent contractor, contracts are a fact. You need them because they serve as legally valid agreements to protect your interests. In this article, we define the terms binding and non-binding and discuss how legal documents with these terms may differ from each other. The inclusion of the words „subject to the contract“ or the use of an „administrative letter“ generally renders the stated conditions unenforceable. To enter into a contract, neither party must be a child. Contracts in which one or more of the parties did not have mental capacity (whether due to a disability or the use of alcohol or drugs) may be terminated. You can find information about the appearance of a contract in SCORE`s available contract templates. Use the search box to find „contracts“ or other keywords for the type of contract you want to create. Also check out these blogs for additional tips: Second, contracts should be considered – something of value exchanged between the parties. The terms of a contract should be written in a specific language and all the terms should be clearly defined.

Any ambiguity will only lead to misunderstandings or disputes between the parties, which can increase the likelihood of litigation. The terms of trade must be written in detail. If the contract governs the sale of goods, it must describe the goods (colour, size, make, model, etc.), the number of goods to be exchanged and the total price. It is also necessary to describe when and where the goods are to be exchanged. Although a contract only requires an agreement between two parties to survive, when a dispute about a contract reaches a court, the contractual guarantee must exist for the dispute to be resolved. This means that there must be no vagueness with regard to the contract, so that the parties are legally bound by it. Terms and conditions must be clearly defined – a judge may try to clarify unclear terms, but a judge may also find an unclear contract unenforceable. For this reason, it is better to have a written contract in which the conditions are clearly stated. Legally binding contracts help companies or individuals avoid litigation. A contract specifies and defines the relative obligations and requirements of each party, which are usually determined after a discussion or negotiation. A legally binding contract does not require specific language, although courts generally interpret the terms of a contract according to their clear and ordinary meaning. Although no specific language is required, the terms of the contract must be carefully examined.

But aren`t contracts loaded with legal language? Don`t they need to be blessed by a lawyer to ensure their validity? Not always. This allows your small business to meet these requirements and ensure that your contracts are legally valid: In general, no consideration should be given to an action that has taken place in the past. For example, money given as a gift on a date prior to that of the contract cannot be considered. An enforceable promise in a contract is a promise or set of promises that all parties agree on in the contract, provided that the contract contains all the necessary elements. For a contract to be considered binding, it must contain the basic elements of a contract, including offer and acceptance, consideration, reciprocity or intent, legality and capacity. If a contract contains all these elements, it is most likely a binding contract. If one or more of the basic elements are missing from the agreement, it is likely to be a non-binding contract. In general, a contract is considered binding if it contains all these elements and does not contain any invalid problems that could lead to undue influence, coercion or coercion. If we reduce the contract to its simplest definition, then a valid contract (or binding contract) is basically just a binding promise. In addition to ensuring that both parties agree on the terms of an offer, the second element that ensures that a contract is legally valid is that both parties exchange something of value.

This is important because it distinguishes a contract from a unilateral statement or even a gift. „Something of value“ could be a promise to provide certain services to one party, while the other party agrees to pay a fee for the work done. Some entrepreneurs want to know how to draft contracts. A contract is an agreement between two or more parties that is legally binding and enforceable in court. The „Parties“ to a contract may be individuals, corporations or other institutions. The object of a contract is usually the exchange of a type of goods or services. A contract must contain all relevant information about the exchange. Essentially, anyone can draft a contract themselves; a lawyer is not required to enter into a valid contract. Seals are not required. They are still sometimes used to make a signature more legally binding (although the appearance of the document does not affect legality). However, access to and use of a seal is often an indicator that the signer has permission.

Just as clear conditions are important for the validity of a contract, it is also important that all conditions are considered fair and described in good faith. .

How to write a legal contract

A business contract is a legally binding agreement between two or more persons or entities.

Contracts can be complex. It is important that you fully understand the terms of a contract before signing anything. You are advised to seek legal and professional advice first.

Understanding business contracts

Dealing with contracts is part of running a small business. You will have a number of business relationships involving some type of contractual commitment or obligation.

  • be a purchaser of goods and services – as a borrower of money, in rental agreements and franchise agreements
  • be a supplier of goods and services – retailer, wholesaler, independent contractor
  • have a partnering agreement with other businesses – partnerships, joint ventures, consortium. Managing your contracts and business relationships is very important.

You should be aware that the majority of contracts entered into will have goods and services tax (GST) implications.

Verbal and written contracts

Contracts can be verbal (spoken), written or a combination of both. Some types of contract such as those for buying or selling real estate or finance agreements must be in writing.

Written contracts may consist of a standard form agreement or a letter confirming the agreement.

Verbal agreements rely on the good faith of all parties and can be difficult to prove. It is advisable (where possible) to make sure your business arrangements are in writing, to avoid problems when trying to prove a contract existed.

Regardless of whether the contract is verbal or written, it must contain four essential elements to be legally binding.

Essential elements of a contract

For a contract to be legally binding it must contain four essential elements:

  • an offer
  • an acceptance
  • an intention to create a legal relationship
  • a consideration (usually money).

However it may still be considered invalid if it:

  • entices someone to commit a crime, or is illegal
  • is entered into by someone that lacks capacity, such as a minor or bankrupt
  • was agreed through misleading or deceptive conduct, duress, unconscionable conduct or undue influence.

General terms and structure of an agreement

There is no specific format that a contract must follow. Generally it will include some terms, either expressed or implied, that will form the basis of the agreement. These terms may outline contract conditions or contract warranties.

Contract conditions are fundamental to the agreement. If the contract conditions are not met it is possible to terminate the contract and seek compensation or damages.

Contract warranties are less important terms and not fundamental to the agreement. You cannot terminate a contract if the warranties are not fulfilled, however, you may be able to seek compensation for any losses incurred.

When negotiating the contract terms make sure the conditions of the contract are clearly defined and agreed to by all parties.

Contracts may follow a structure that can include, but are not limited to, the following items:

  • details of the parties to the contract, including any sub-contracting arrangements
  • duration or period of the contract
  • definitions of key terms used within the contract
  • a description of the goods and/or services that your business will receive or provide, including key deliverables
  • payment details and dates, including whether interest will be applied to late payments
  • key dates and milestones
  • required insurance and indemnity provisions
  • guarantee provisions, including director’s guarantees
  • damages or penalty provisions
  • renegotiation or renewal options
  • complaints and dispute resolution process
  • termination conditions
  • special conditions

Standard form contracts and unfair terms

A standard form contract is a pre-prepared contract where most of the terms are set in advance with little or no negotiation between the parties. These contracts are usually printed with only a few blank spaces for adding names, signatures, dates etc.

Examples of standard form contracts can include:

  • employment contracts
  • lease agreements
  • insurance agreements
  • financial agreements

Standard form contracts are generally written to benefit the interests of the person offering the contract. It is possible to negotiate the terms of a standard form contract. However in some cases your only option may be to ‘take it or leave it’. You should read the entire contract, including the fine print, before signing.

If you intend to offer standard form contracts you must not include terms that are considered unfair. This could include terms that:

  • allow one party (but not another) to avoid or limit their obligations
  • allow one party (but not the other) to terminate the contract
  • penalise one party (but not another) for breaching or terminating the contract
  • allow one party (but not another) to vary the terms of the contract.

There are laws protecting consumers from unfair contract terms in circumstances where they had little or no opportunity to negotiate with businesses (such as standard form contracts).

Unfair contract terms and small businesses

A law protecting small businesses from unfair contract terms in standard form contracts applies to contracts entered into or renewed on or after 12 November 2016, where:

  • it is for the supply of goods or services or the sale or grant of interest in land
  • at least one of the businesses employs fewer than 20 people
  • the price of the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.

For more information on unfair contract terms visit the ACCC website.

Before signing a contract

Before you sign a contract:

  • read every word, including the fine print
  • ensure that it reflects the terms and conditions that were negotiated
  • seek legal advice
  • allow plenty of time to consider and understand the contract
  • don’t be pressured into signing anything if you are unsure
  • never leave blank spaces on a signed contract – cross them out if you have nothing to add so they cannot be altered later
  • make sure that you and the other party initial any changes to the contract
  • obtain a copy of the signed contract for your records.

Once you’ve signed a contract you may not be able to get out of it without compensating the other party for their genuine loss and expenses. Compensation to the other party could include additional court costs if the other party takes their claim against you to court. Some contracts may allow you to terminate early, with or without having to pay compensation to the other party. You should seek legal advice if you want to include an opting-out clause.

Every entrepreneur deals with contracts and agreements with customers and suppliers on a regular basis. You may hire staff, buy or sell goods, rent or hire equipment or premises. Both parties have to observe rights and duties. What are they, and how do you draw up a good contract? How do you avoid unpleasant surprises?

What is a contract or agreement?

Who can enter into a contract?

How do you conclude a contract?

Contents of a contract

  • the duration of the contract
  • the notice period
  • delivery
  • consequences of failure to fulfil obligations
  • terms of payment and collection
  • warranty
  • service and maintenance obligations
  • the handling of disputes

What invalidates a contract?

  • one of the parties is a minor, or in ward;
  • the person signing the agreement is not authorised to represent the organisation or company;
  • the contents of the agreement violate the law, the rules of common decency, public safety, or are unreasonable or unfair;
  • the information given about the contract was misleading (for instance, if one of the parties entered into the agreement because they had the wrong impression of a product);
  • the agreement was entered into under threat, abuse of circumstances or deceit.

General terms and conditions

Types of agreements

  • You conclude a sales contract or purchase agreement when you supply products or services.
  • If you are a self-employed professional, you use model agreements to prove to the Tax Administration that you’re not in your client’s employ.
  • If a public authority awards you a project in a tender, you conclude a procurement contract.
  • You lay down agreements with the owner of a franchise in a franchise agreement.
  • An employment contract is the agreement between employer and employee that contains work arrangements.
  • A non-disclosure agreement (NDA) is used to protect confidential information.
  • You lay down arrangements on the financing of company equipment and vehicles in a lease contract.
  • A rental agreement serves to record arrangements for renting or hiring company accommodation.
  • If you want to start a company with others, you can conclude a partnership agreement for your legal business structure.

Things to take into account

Find out if the person you’re dealing with is legally capable and authorised

. You can search for information in the Business Register by trade name, address or Chamber of Commerce number (in Dutch only). Searches are free of charge. You can find out if someone is in ward by checking The Central Receivership and Administration Register

(Curateleregister, in Dutch).

Don’t simply withdraw during negotiations

Declaration of intent

Be careful when you sign a declaration of intent. You may be entering into obligations without wanting to. Be sure to read the contents of the declaration carefully.