Some advantages of a written contract include:

  • Making both parties seriously aware of the effects of the agreement, both when it comes to performance and nonperformance.
  • Preventing misunderstandings at a later date because both parties will have previously articulated their intentions.
  • Enhancing the trust between each party by negotiating each others' desires.
  • Having tangible proof of what you and the other party agreed to originally.
  • Giving you peace of mind because the terms of the agreement will be written down and cannot change.
  • Knowing how disputes will be resolved.
  • Knowing how either party can put an end to the contract before the specified work is finished.

What Is a Written Contract?

A written contract is a document that lays out the duties, responsibilities, and commitments for every party involved. It's a way for everyone to remember what was agreed to, especially in complex deals.

There are two main components you'll need to include in your written contract if you want it to be legally binding. These are the consideration and the agreement.

While the agreement part is pretty straightforward, a consideration might be harder to understand. It's when all parties involved in the contract must receive something of value. For example, you can't create a written contract stipulating someone pays you $1,000 for nothing in return. In this instance, that would be considered a gift instead of a contract.

Within both the agreement and the consideration, there are a number of other things to include, such as the:

  • Performance, which is a rating of how well each party will perform the terms of the contract.
  • Terms/conditions, which outline how the agreement will proceed.
  • Offer, which must be accepted before the contract is valid.
  • Obligations, which define what each party must do to fulfill the contract.
  • Liability, which describes how things will be handled if there is a problem.
  • Payment clauses, which describe how payment will be handled.
  • Breach of the contract, which describes what happens if one or both parties do not fulfill their duties.
  • Entire agreement clause, which ensures that only what is written down is agreed to and nothing else.
  • Force majeure clause, which automatically cancels the contract if some major event outside the control of either party occurs, such as an earthquake or fire.
  • Arbitration/mediation clause, which is how arguments will be settled (usually with either a mediator or third-party independent arbitration).

Overall, creating a strong written contract relies on using specific and clear language that can't be misconstrued. While hiring a contract lawyer to create a draft of your contract might cost a little money upfront, it's a good choice because it can save you a lot in the long run. With a well-worded contract, you won't have to pay expensive litigation fees if things go wrong.

Written Contracts Versus Verbal Contracts

When you choose a written contract as a form of agreement instead of a verbal one, it helps you vet the other party. Written contracts must be reviewed by legal counsel to ensure they are sound. If the other party refuses this step, it can raise important questions about their company. They might be hiding something or have some legal trouble they don't want you to find out about.

For example, they might want to settle on a verbal contract because it doesn't limit them. They can go and make the same verbal contract with another company, as this isn't a legally binding agreement. However, with a written contract, they are formally prohibited from making agreements with other parties.

Not every business partner will be shady like in the above example. However, in many cases, oral contracts lead one or both parties to make honest mistakes because the terms of the agreement are not clearly written down.

Another example of this is if a contractor agrees to a change in the project deadline via a conversation. They may not realize it, but this technically is considered an oral agreement. However, because there is no evidence that the conversation actually occurred, this type of agreement can be very difficult to prove in court.

In addition, written contracts are enforceable in court for a much longer period of time than oral contracts. Some states allow for written contracts to be enforced for up to six years, while the maximum length of time an oral contract can be enforced is only three years.

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