Key Takeaways

  • A draft contract is a preliminary version of an agreement outlining key terms before finalization.
  • A well-drafted contract includes elements such as offer, acceptance, consideration, and clarity in language.
  • Contract drafting involves preparation, negotiation, legal review, and clear structuring.
  • Common mistakes like vague terms or missing signatures can render contracts unenforceable.
  • Modern contract management tools can streamline drafting, editing, and collaboration.
  • Legal guidance ensures your contract aligns with applicable laws and protects your interests.

Draft Contract

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.

Drafting Process

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:

  • Timetables
  • Prices

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.

Key Steps in the Drafting Process

Creating a draft contract involves several critical steps beyond simply writing out terms. These steps help ensure clarity, mutual understanding, and enforceability. Here are the most important ones:

  1. Identify the Purpose – Define what the contract aims to achieve, including obligations and benefits for all parties.
  2. Define the Parties – Accurately name and describe each party, including roles and responsibilities.
  3. Outline Major Terms – Include payment amounts, timelines, deliverables, and consequences for breach.
  4. Draft Clear Clauses – Avoid legal jargon when possible. Clarity helps prevent disputes.
  5. Review for Legal Compliance – Ensure the contract complies with local, state, and federal laws.
  6. Negotiate Terms – All parties should review and suggest revisions to reach mutual agreement.
  7. Final Review and Editing – Proofread and confirm the presence of essential elements like signatures, dates, and definitions.

Contract Basics

You may tailor your agreement accordingly, but it should include the following basics:

  • The offer
  • Acceptance
  • Consideration or quid pro quo: parties must give and receive an object or service of value)
  • Valid purposes
  • Capable parties to contract

Common Clauses Found in a Draft Contract

Most contracts—especially business-related ones—include some standard clauses that serve specific legal functions. These include:

  • Confidentiality Clause – Restricts sharing of sensitive information.
  • Termination Clause – Details how and when the agreement may be ended.
  • Dispute Resolution – Specifies how legal disagreements will be handled (e.g., arbitration or court).
  • Force Majeure – Excuses performance delays due to unforeseeable events like natural disasters.
  • Amendment Clause – Outlines how the contract may be modified after signing.
  • Governing Law – Declares which jurisdiction’s laws apply to the contract.

These clauses help safeguard the parties and establish expectations throughout the duration of the agreement.

Contract Example

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.

Written Contracts

During the contract negotiated phase, ensure that all pertinent information is included. Some of the most vital details must include the following:

  • Price
  • Payment terms
  • Completion

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.

Common Mistakes in Draft Contracts

Avoiding errors during the drafting stage is crucial to creating a legally sound and practical agreement. Common mistakes include:

  • Vague or Ambiguous Language – Leads to misinterpretation and legal disputes.
  • Failure to Specify Deadlines – Can result in missed obligations or unenforceability.
  • Unbalanced Obligations – One-sided terms may not hold up in court.
  • Missing Essential Elements – Such as offer, acceptance, or mutual consideration.
  • No Signatures or Dates – Omitting these can void the contract.
  • Improper Use of Templates – Relying on generic templates without customization can leave gaps.

A thoughtful, detailed draft contract minimizes risks and strengthens the enforceability of the agreement.

Contract Verbiage

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.

Tools and Software for Drafting Contracts

Technology has made drafting contracts more efficient. Today, many professionals use specialized tools to automate parts of the process, reduce errors, and improve collaboration. Common features include:

  • Clause Libraries – Pre-approved legal language for recurring clauses.
  • Version Control – Track changes and revisions made by different parties.
  • E-signature Integration – Allows remote signing and finalization.
  • Templates – Provide starting points for standard agreements.
  • Compliance Checks – Scan drafts for compliance with current regulations.

Using contract drafting tools can be especially helpful for businesses managing multiple agreements or needing standardized language across departments.

Frequently Asked Questions

  1. What is the purpose of a draft contract?
    A draft contract outlines preliminary terms of an agreement and serves as the starting point for negotiation and legal review before finalization.
  2. Can a draft contract be legally binding?
    Generally, a draft contract is not binding unless both parties agree in writing that it is. It's typically considered a work-in-progress.
  3. Who should review a draft contract?
    It is wise to have each party review the draft, and ideally, an attorney should review it to ensure legal enforceability and fairness.
  4. What should be included in a basic draft contract?
    At minimum, include names of the parties, offer, acceptance, consideration, terms, and signatures.
  5. How can I ensure my draft contract is enforceable?
    Use clear language, include essential legal elements, avoid ambiguity, and consult a legal professional for review.

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.