#how to write a contract

[datamyte2022]

Tips for Drafting a Contract: A Guide with Templates

In the world of business, contracts are vital documents that establish the terms of agreements between parties, ensuring mutual understanding of each party's rights and responsibilities. Learning how to draft a proper contract is crucial, as a well-written contract protects your interests and fosters a transparent relationship between all parties involved.

This article will guide you through the essential steps of writing a contract and provide useful tips to help you get started.

Key Elements of Contract Writing

Before delving into tips and templates, it's important to understand the core principles of contract writing. Here, we'll review the essential elements of a contract.

What is a Contract?

A contract is a legal agreement between two parties, where one party promises to perform a certain task or provide something of value in exchange for consideration (something of value). If either party fails to meet the terms, legal action can be taken.

Contracts are essential for businesses as they outline the expectations and responsibilities of each party, avoiding confusion. For instance, if you're a web designer working with a client, your contract should specify the project's timeline, design expectations, payment terms, and deadlines.

Once both parties agree and sign the contract, they are legally bound to fulfill their respective duties.

Key Components of a Valid Contract

For a contract to be enforceable, it must include several fundamental elements. Here's a breakdown of what makes a contract valid:

Offer and Acceptance: One party makes an offer, and the other party accepts it.

Intention to Create Legal Relations: Both parties must intend for the agreement to be legally binding.

Consideration: This refers to what is exchanged between the parties.

Capacity to Contract: All parties must have the legal ability to enter into the agreement.

Consent: The agreement must be entered voluntarily, without coercion.

Legality: The contract must not involve illegal activities.

These elements ensure that the contract is legitimate and enforceable, protecting both parties involved.

The Importance of Clarity

A well-written contract should be clear and precise, with no room for misinterpretation. Clear terms build trust between parties and ensure that everyone is on the same page about their obligations. Furthermore, a well-structured contract is easier to enforce legally. To achieve this, avoid complex legal jargon, and ensure that the language is simple and direct.

Steps to Draft a Contract

Now, let's walk through the general steps to draft a contract. While each contract will vary based on the situation, these steps provide a reliable framework:

Identify the Parties: Clearly state the full legal names and contact details of everyone involved in the contract.

Define the Purpose: Articulate the reason for the contract. A clear description of its purpose prevents future misunderstandings.

Outline the Terms and Conditions: This is the heart of the contract. Specify each party’s rights and obligations in detail.

Set a Duration: Include the start and end dates, or conditions under which the contract will terminate or be renewed.

Payment Terms: Specify the payment amount, method, and due dates, along with penalties for late payments.

Dispute Resolution: Include provisions for resolving any conflicts that may arise, such as mediation or arbitration.

The Benefits of Using Contract Templates

Templates can simplify the process of creating a contract. They provide a basic structure, saving you time and effort while ensuring that all necessary clauses are included. Here’s how templates can benefit your business:

Time-saving: Templates streamline the contract-writing process, allowing you to focus on specific terms.

Consistency: Templates ensure uniformity across contracts, making them easier to review.

Reduced Errors: Many templates are created by legal professionals, minimizing the risk of missing key details.

Cost-effective: Using templates can help reduce legal costs for simpler contracts.

Where to Find Contract Templates

You can find contract templates in various places, including:

Legal platforms: Websites like LegalZoom and Rocket Lawyer offer pre-made contract templates.

Software tools: Programs like Microsoft Office and Google Docs offer editable templates.

Professional associations: Industry-specific templates are often available through these organizations.

Legal consultancies: Many law firms provide templates tailored to specific needs.

While templates are a useful starting point, always customize them to fit your specific requirements and consult a legal expert to ensure they comply with relevant laws.

Customizing Templates for Your Needs

Once you have a template, it’s crucial to adapt it to your particular situation. Here are some tips for customization:

Assess Your Needs: Identify the specifics of the agreement, such as payment terms or confidentiality requirements.

Choose the Right Template: Select a template that fits the type of contract you need (e.g., service, employment, rental).

Fill in Details: Replace placeholder text with the actual details of the agreement.

Add Unique Clauses: If necessary, include any additional provisions that are specific to your agreement.

Review Thoroughly: Once customized, read the contract carefully to ensure accuracy and completeness.

Essential Components of a Well-Written Contract

While every contract is unique, certain elements should be included to ensure it is comprehensive and legally binding:

Clear Language: Use straightforward, easily understandable terms.

Description of Goods/Services: Provide a detailed account of the items or services involved.

Payment Terms: Specify the amount, schedule, and any late payment penalties.

Termination Clause: Define the duration of the contract and conditions for termination.

Confidentiality/Non-Compete: Include clauses to protect sensitive information or prevent competitors from engaging in certain activities.

Common Mistakes to Avoid

Drafting a contract is complex, and it's easy to make mistakes. Here are some common pitfalls:

Ambiguity: Ensure all terms are clear and unambiguous to avoid confusion.

Incomplete Information: Missing details, like incorrect names or dates, can invalidate a contract.

Legal Compliance: Ensure your contract adheres to relevant local, state, and federal laws.

Skipping Legal Review: Always have a legal expert review your contract before finalizing it.

Seeking Legal Assistance

While using templates is a helpful starting point, seeking legal advice is crucial, especially for complex or high-stakes contracts. A legal expert can ensure that your contract complies with all applicable laws and helps protect your interests.

By following these guidelines and using templates effectively, you can draft clear, enforceable contracts that protect your business and establish solid agreements with partners, clients, and employees.

[aquariuseducation]

A Simple Way To Understand Contract Law Once and For All

Funny thing happened the other day.

An Aquarius Education client brought in a contract for revision. It was a simple one but she wanted to make sure she isn’t missing anything.

After reviewing the contract it seemed somewhat familiar. I was wondering how and where I have seen this exact contract and then it hit me – I headed over to the website of the Government of South Australia and found this exact same contract I was holding as a template for supplier contracts!

Although I was surprised at first, the feeling quickly changed to pure regret. It seemed that business owners are truly downloading and copy-pasting contracts off the Internet. And while the Australian government is a reliable source, not all Internet sites are.

Then I figured it out – no wonder business owners copy-paste contracts and agreements off the Internet – contract law is complicated. That’s why I always advise business owners (even small and one-person businesses) to hire a lawyer to draft all of their contract templates once and for all. Then they can use those in every business transaction.

However some don’t want to spend the time and money on a lawyer’s services. Other prefer to be contract law savvy so that they can understand the contracts they are presented by suppliers and partners (especially when you work with big corporations, you are mostly given a contract draft.)

If you are one of the business owners that want to stay on top of contract law and don’t want to leave everything to the other party and your lawyer, here is what you need to know:

How do you form a contract?

A contract is formed when two parties agree to do something for each other. A contract can be verbal as well, so when you say you will do something and get something in return you are bound by a contract. Showing agreement is considered contract formation. You don’t need to sign anything to be in contractual relationship.

What is a contract based on?

Each contract is based on consideration, i.e. what will each of the parties do. A consideration is the obligation of each of the parties and must be measurable – each consideration should be balanced with the other. This means that a contract that provides a service that costs $30 elsewhere and charges you $300 might be deemed unfair and invalid.

In addition, there should be genuine consent to enter into contractual agreement, so explicitly saying or writing that you will do something is necessary.

What should I look out for?

There are two important elements of a contract that provide you with the knowledge if it is legal and if it is going to be completed – intention and legal capacity.

Those show if the other party is going to be able to fulfil the contract. For example, the ownership of a restaurant needs to be proven before it is re-sold. This is legal capacity.

When is a contract illegal?

As the guys at The Law Handbook explain a contract can be illegal for many reasons. For example, if the other party is incapable of completing the contract or has provided false statements, a contract will most probably be deemed illegal. The same will happen if the subject of the contract (what it is about) is something illegal.

How should you protect yourself?

When you draft, copy or read a contract the clauses you need to look for are the ones that oblige the other party to complete the contract. There need to be clauses that precisely describe what happens if the contract obligations are not fulfilled. For example, what happens if the painting of your new office is not done in 3 days? Or if you fail to deliver your service to clients? Or what happens if at the end of the month prices of raw materials are different than what you agreed upon?

Obligations must go hand in hand with consequences if you want to have a successful strong contract. You should know that a contract clause is binding only if the person signing or agreeing is aware of all the clauses and limitations of the contract. They might provide incomplete information and that won’t be a reason to break the contract if they were not aware of that.

For a contract to be breached, one of the considerations must be incomplete or there should be intentionally misleading of one of the parties.

Contract law is complex because individuals and businesses are free to enter into contractual relationship almost without limitations. Of course, those relationships should be legal and that’s why contract law falls under general common law. However, many business relations and business contracts fall under Australian consumer law especially when it comes to guarantees, privacy and ‘significant imbalance’ of consideration.

We strongly advise you to consult both consumer and common law regulations for unfair contract law practices if you feel that the contract you are about to sign is not lawful. Domestic arrangements are usually not considered part of contract law unless there is a strong indicator that the relationship was commercial in its nature.

To make your contract law life easier you have two options:

1. Hire a lawyer and have her draft basic business contracts for you. In this way you can have ready contracts whenever you need to start a new business relationship. You can insist that partners, customers and employees sign your contracts. 2. Learn the basics of contract law yourself. In this way you will use the contracts drafted by your lawyer where possible but will be able to know if contracts provided by your counterpart are beneficial for you when they insist to use their own contracts.

It’s up to you to decide what works best for you. The only thing you shouldn’t do is ignore contract law and assume that anything or everything is in a contract. The laws are important but they can be bent in many ways by sneaky clauses. Know contract law to protect your company and always negotiate a win-win relationship.

What next? Any questions about contract law? If you need your business contract templates drafted or are unsure about a contract issue, contact us here immediately before it gets too late.

If you have decided to take things into your own hands and learn contract law, book a spot at one of our next contract law workshops.