10 tips for Writing a killer contract
The fundamental purpose of all contracts is to provide clarity; clarity for each of the parties and clarity for the outside world.
However, because the contract has become a symbol of litigation, many people assume that contracts are simply used in court as a way to hold each other accountable. Although contracts are a fabulous way to protect yourself, they serve a much more beneficial purpose of acting as a guidepost during your relationship with the other party.
A contract should be detailed enough that each party can refer to it to find the answers to any questions about the contractual relationship. The contract should lay out the who, what, where, when, and why of any relationship. That is its main purpose.
Despite all of its complexities, a valid contract requires three simple elements: 1) an offer; 2) the acceptance of that offer; 3) and consideration. The offer must be one that is communicated to the other party and outlines the terms of the agreement. The acceptance of the offer is accomplished either affirmatively or with actions. For example, cashing a check may be considered an acceptance. Finally,“consideration” is just a legal way to say that each of the parties gives up something in the contract.
“A verbal contract isn't worth the paper it's written on.” - Samuel Goldwyn
Although an oral contract can be formed at any time with the elements above, certain contracts must be in writing in order to be enforceable. These contracts include, but are not limited to real estate leases for more than one year; contracts that agree to pay someone else's debts; contracts for the sale of goods for the price of $500 or more; and service contracts that cannot be performed within one year.
Regardless of the type of contract, there are certain tips that can help make a contract stronger and more enforceable. These tips can be used by anyone to enhance an already existing contract or guide the drafting of a new contract.
1. Written - Certain contracts must be in writing in order to be enforceable. Agreements for the sale of real estate and contracts for the consideration of marriage are just a few examples of contracts that must be in writing. However, even when it is not required, a contract should always be in writing. It increases the clarity and understanding between the parties, managing expectations and reducing the likelihood of a dispute. In addition, a written contract provides evidence of any agreements if the relationship should result in litigation or a dispute. Aside from the legal implications, well-written contracts help to improve a business’s image. By using clean and concise contracts, a business is highlighting its professionalism and knowledge within its industry.
2. Simple language - Despite the prevailing trend of turning contracts into Latin dissertations, simple language is actually preferred in a contract. Using conversational language instead of legalese helps to increase the clarity in the contract and avoid misunderstandings. Good writing practices like using simple sentences, writing out contractions, and employing bullet points can all assist in making the contract stronger. By using plain language, the contract becomes one more polished form of communication with the other party, instead of just another contract.
3. Clearly identify the parties - Although it may seem obvious, many contracts fail to clearly identify who the contract is pertaining to. The “who” is just as important as the what, where, when, and why in a contract. Therefore, consistency in the names and references to the parties is essential in clearly understanding who is bound by the agreement. It is highly advisable to avoid pronouns, but if they are necessary, consistency is a must.
4. Focus on the details - Many times, the disputes that arise out of contracts are avoidable. Spell out the numbers, as well as writing them numerically. Anticipate accidents, mistakes, and other breaches and how they will be handled. Be vague when it benefits you and specific when it doesn’t. Read, read, and re - read the language. (TIP: When editing, read the sentences backward.)
5. Think about the break-up - Just like in romance, no one wants to talk about the end of a relationship. However, this is exactly the time to discuss what will happen if the relationship goes south. Everyone is happy and excited about the future; minds are open and willing. A clear and concise exit strategy may be the difference between saving a future business relationship and ending up in court.
6. Talk about what happens if you don’t agree - Disagreements in any relationship are inevitable. And, these disagreements are exactly what contracts are designed to address. Especially in business contracts, provisions that address deadlocks are imperative. By anticipating the fact that there will be times when all of the parties do not agree, a contract can provide for a seamless and effective way to resolve the disagreements before they become fatal to the relationship.
7. Provide background - If you have ever read a contract, you may have noticed a section titled “Recitals.” This section is the story of the contract. It sets the stage for the agreement and highlights why the parties are contracting in the first place. Recitals can include background information, an explanation of the parties, and the purpose of the agreement. Recitals assist in providing more clarity for the parties and serve as a reminder to everyone involved as to the purpose of the contract.
8. Define, define, define! - The definition section of a contract is one of the most important parts of any contract. There are a number terms in every agreement that have a specific meaning. Certain industry terms may have one meaning to the outside world, but a completely different meaning to the parties to the contract. Defining these terms allows for a simpler, cleaner contract and highlights the drafter’s attention to detail.
9. Remember that you will be bound by all of the terms too - Many times, contract provisions are written with only the opposing party in mind. This is a mistake. When drafting any agreement, remember that you will be bound by the terms, as well. Therefore, review all of the provisions as if they were being used against you to determine whether the result works in your favor.
10. Have an attorney review - Any contract will become stronger and more secure after it has been reviewed by an attorney. An attorney, licensed to practice in your state, will have an understanding of the most recent laws and cases, impacting your contract and industry. Additionally, most attorneys have had the dissatisfaction of seeing the fallout of a poorly written agreement and will be able to help you avoid those same results. Enlisting the help of an attorney to review your agreement before it is finalized can, at a minimum, help you sleep at night!
“Contract law is essentially a defensive scorched-earth battleground where the constant question is, “if my business partner was possessed by a brain-eating monster from beyond space time tomorrow, what is the worst thing they could do to me?” ― Charles Stross
Although contracts may feel a little intimidating, they are actually a crucial and unavoidable part of our life. Whether you are an individual, who is about to sign a residential lease, or a business owner, who is about to acquire a new business, the contract you sign will become an integral part of your life. Make sure it is as strong as possible and take the time to read and understand it and how it will affect you.
Megan Porth is the founder and managing attorney at Your Contract Shop. Megan was born and raised around entrepreneurs and business people. From a very young age, she was attending networking events, strategic planning meetings, and marketing seminars. Her passion for helping businesses grow inspired her to go to law school, where she graduated with honors. She currently owns her own business consulting firm in addition to being a practicing business law attorney.
Megan Porth is only licensed in Arizona. Any other work done through Your Contract Shop outside of Arizona will be done only with attorneys who are licensed or authorized to practice in that state.
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