Draft Contract: Everything You Need to Know
A draft contract is an agreement that’s not finalized. 3 min read
2. Drafting Process
3. Contract Basics
4. Contract Example
5. Written Contracts
6. Contract Verbiage
A draft contract is an agreement that’s not finalized. During the process of a property transaction, for instance, the first agreement is called the draft contract. The precise terms and wording also have not been agreed to by all sides. In essence, it’s a short-form document that states what the buyer will agree to and how much the seller will agree to sell the property for. Small business owners and senior managers need to draft various agreements, although certain agreements require the review of a business attorney.
The process of creating a contract begins before any words are recorded on a page. The agreement should safeguard your interests so the law will be on your side if you need to enforce an agreement in court. Moreover, the agreement should describe the deal in question and what all sides promise to do. You are in a unique position where you need laws to help you move forward with business deals. Agreements are also ways for both sides to note a negotiated deal. In this case, the agreement is a business document.
A contract could detail such factors as:
It also allows for common reference points as commercial relationships grow. With that, the agreement is also a legal document. Both sides are entering into a legally-binding contract. If one side fails to live up to his or her end of the contract, legal consequences could follow. The agreement must not only note a business agreement, but it must also be recorded in a way that renders the agreement enforceable in court.
All sides must agree to the final contract and sign it, followed by the document exchange. The exchange process is called exchange of contracts. Once this is accomplished, the agreement cannot be reversible, and the buyer must purchase and the seller must sell the product in question.
You may tailor your agreement accordingly, but it should include the following basics:
- The offer
- Consideration or quid pro quo: parties must give and receive an object or service of value)
- Valid purposes
- Capable parties to contract
On the understanding of each element, consider the following example:
John and Bill are capable adults who can enter into a contract. Bill is looking for a new car, but he’s operating within a budget. Therefore, he looks through classified ads and finds that John is selling his old Chevy for $1,000. Bill contacts John and offers $800 instead. John accepts his offer and they decide to complete the transaction. After, Bill gives $800, and John gives him the keys to the vehicle. This would constitute a legally-binding agreement.
Offer: Bill made the offer to John to buy the car.
Acceptance: John accepts Bill’s offer.
Consideration: Therefore, Bill loses $800 while getting the vehicle he needs, and John loses his car but gains $800.
Valid Purpose: The sale of the vehicle is considered a valid purpose (instead of a contract of something illegal).
Parties Capable to the Agreement: The written contract is not required for the contract to be binding, although it is a benefit to both parties.
During the contract negotiated phase, ensure that all pertinent information is included. Some of the most vital details must include the following:
- Payment terms
You should use a spreadsheet or memo listing relevant details about your agreement so you can reference and check all items off during the drafting phase. Also, ensure that the language is precise and clear upon writing the agreement.
Legal agreements do not have to include certain phrases or words, but you should include some things to avoid ambiguities and confusion in the future. You should start the contract by noting all parties involved and use full names. A good example sentence is “The parties agree as stated.” Such a sentence allows readers to know that certain contract terms would follow.
Use common markers as you write the contract. For instance, term is a common contract clause that describes agreement timelines. Common terms keep the agreement clear and easily readable. Moreover, you should end the document with lines that all parties can sign. All parties should review the agreement and make any corrections or ask for clarification when necessary.
If you need more information on a draft contract, submit your legal need on UpCounsel's marketplace. UpCounsel’s attorneys will give you more information on how to draft a contract to protect your business interests. Moreover, they will review an agreement before you sign it so you can get a full grasp of what you’re agreeing to.