Writing a Contract

Writing a contract is the process of describing the expectations of all parties agreeing to the terms of the relationship under the contract. A contract is a court-enforceable legal agreement between two or more “parties” that creates legal obligations for both. The parties can be individuals or large companies. Usually contracts are exchanges of money and goods or services.

Components of a Contract

A contract should include: an offer, an acceptance, and consideration. Consideration is an exchange of promises and/or performance: usually goods, services, and/or money.

The contract is binding and enforceable only if the offer is clearly made and accepted. One party makes a clear and intentional offer, and the other party to the contract accepts all of the terms of said offer. Both parties must have the same knowledge and understanding of what the contract entails. This is called mutual assent.

Consideration

In order for a contract to be valid, something of value must be exchanged by both parties. This is called "consideration," and a valid contract is not formed without it. Different types of goods and/or services can be exchanged, cash, intellectual property, services, goods, promise to do or not do something, etc., but most contracts involve the exchange of a product or a service for money. In order for a contract to be “fair” contract law requires that the consideration be “adequate.”

Why a Contract?

A simple handshake or oral agreement, while legally binding, will not always be provable if a dispute arises. In order to ensure all appropriate information is included and all legal requirements are met, a contract should be drafted and signed. A contract does not need to be multiple pages long or complicated. It should just be a basic contract agreement in clear and simple terms, even for business agreements. This will protect all parties and ensure fairness.

The terms, including, but not limited to the consideration exchanged under the contract, must be clear to be enforceable. This way, you know all parties are aware, or should have been aware, of what has been agreed to.

Competency/Capacity

In creating a valid contract, all parties must be legally competent. A contract will not be valid if either party does not have legal ability, or “capacity,” to enter into a contract. Capacity is determined by both a person’s age and his or her mental competency.

This ensures that everyone entering into the contract is fully able to understand what they are signing.

Requirements for competency:

  1. Most states require parties to be 18 years or older.
  2. Emancipated minors can enter into binding contracts.
  3. If neither 18+ nor an emancipated minor, a parent or guardian may be able to enter into a contract on behalf of their child/ward.
  4. All parties must have the mental capacity to enter into the contract.
    • This is determined by whether or not the party has the capacity to understand the contract and the legal obligations/duties required of him or her under the contract.
  5. Not intoxicated or mentally impaired when the contract was signed.
  6. Authority.
    • If one of the parties is a company or business, ensure that the person agreeing to the contract has the legal authority to do so for the company.
  7. No duress or coercion in order to induce a party to enter into the contract.

Business Contracts

In a business contract, the document lays out the terms of the agreement(s) including the services to be provided and/or the products being sold. It will also lay out deadlines, prices, and payment plans.

Business contracts are very important to and protect both companies/partners in the contractual relationship.

Ask these questions when drafting and/or signing a business contract:

  1. Does this agreement address all of the possible situations or problems that may arise?
  2. Do we have a contingency plan?
  3. Are any of the provisions ambiguous or unclear?

A business contract should include the following:

  1. Names of all parties
  2. Contract beginning and end dates
  3. Payment amounts and schedule
  4. Steps to take when a party breaks the contract
  5. Signature with date

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