Updated November 6, 2020:

A legal contract between two individuals must be agreed upon by all parties with both parties exchanging something of value.

A legal contract forms obligations between two or more parties. These agreements exchange something of value, typically goods or services. You must include detailed information so that all parties remain protected.

Contact Basics

Before you write the contract, determine whether or not you need one. If you provide labor, service, property, or goods, you should have a contract in place. The parties must be able to understand the contract without legal counsel.

Contracts have three elements:

  • Offer
  • Acceptance
  • Consideration

When forming the contract, you should take the following considerations into account:

  • All parties involved are at least 18 years old. A guardian might be able to sign on behalf of a minor.
  • Contracts should involve people who have the authority to legally fulfill them.
  • Contracts are void if either party signs while mentally impaired, under duress, or coerced.

Writing the Contract

Include basic information, such as the date and names of the parties. Define the role of each party and refer to each by that role. For instance, if you call one party the buyer and the other the seller, continue referring to each in those positions throughout the contract.

Include information about the exchange of consideration, and write clearly as to which party delivers and what the other agrees in exchange. Use short sentences and provide a numbered heading for each paragraph. This makes it easier to reference information. 

If needed, include an addendum if you forgot a specific aspect in the contract. You can add this at any time as long as all parties sign or initial the addendum. You can also add a confidentiality clause or Non-Disclosure Agreement (NDA) if you don't want anyone to share the contract's information.

Other clauses to consider include the following:

  • Contract termination
  • Contract length
  • Breach of contract
  • Dispute resolution

Save the last page of the contract for all parties to sign and date. Make sure there is enough space for everyone's name and date.

Executing the Contract

Once the contract is ready, send it to the other party to review and make an offer. The party may opt to accept or reject the contract as is. Occasionally the party responds with a counteroffer or suggests changes before the contract is accepted. If this occurs, negotiate until you reach an agreement. 

Include a schedule and payment method in the contract. This can include a lump-sum payment, monthly dividend, or installment plan. From there, sign and date the contract. Some companies use electronic services instead of written signatures. Keep a copy of the contract for reference.

Setting Consequences for Breach

Explain in the contract what would qualify for a breach of contract. Typically, it involves one party failing to perform as stated in the contract. Legally, however, the failure must relate to the basis for the agreement. 

You should include exceptions when you excuse certain failures. Sometimes there are unexpected situations that are not the party's fault. If that occurs, there is no breach. This clause, usually referred to as force majeure, usually involves uncontrollable events, such as natural disasters.

Include breach of contract remedies. If you encounter a dispute, the agreement should define the type and amount of damages awarded.

Finalizing the Agreement

All parties should read through the agreement carefully. Resolve any misunderstandings before signing the document. If you want to file or record the document, you need extra copies, as the original document must be filed with a government agency. 

Agreement Letters

Letters written between two parties that focus on the terms and conditions are called agreement letters. The letters, whether formal or informal, make sure that both parties remain protected legally. They should be self explanatory so that both parties can understand the content. For them to be legally binding, the letters must have both parties' signatures.

Letters to Business Partners

Similar to agreement letters, letters to business partners go to those with whom you have a business relationship. A business partnership involves a legal relationship when two or more people agree to operate a business together.

When you establish this type of relationship, you must write a letter to the business partners as a legal record of the partnership. The formal letter must contain the partnership offer, names of partners, and the terms and conditions.

If you need help with a contract between two individuals, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.