How do you write a contract?
There are times when business contracts seem to be the center of everything. Because they are fundamental to every company’s operations, they can be difficult and time-consuming to draft. After all, a lot depends on them. Do not freak out if you are suddenly pressed for time and have to compose one. Following the steps in this guide will ensure that your contract is comprehensive, well-written, and, most importantly, enforceable in the eyes of the law.
Does anybody have the ability to draft a legally binding contract?
There are no specific prerequisites for who can or cannot draft a contract, so you can rest assured that you have the necessary qualifications and experience. A contract, after all, is nothing more than an agreement in writing between various parties. In legal terms, a commitment made on the back of a napkin to cover your lunch tomorrow is a contract.
But in practice, there are more complexities to contract drafting than this. An attorney with both academic training and professional experience may be necessary to draft certain very intricate contracts.
Still, you should be able to handle the vast majority of business contracts with ease if you know what to look for, how to spell out the conditions clearly, and how to tailor the contract to the specifics of the deal at hand.
If you’re already employed as a lawyer, you’ve probably seen enough contracts to draft your own decent ones. Also, it’s not a big deal if you’re not! Read on for a crash course in contract writing along with some helpful pointers.
The components of a well-drafted contract
When you’re writing a contract, it’s easy to let your mind wander to all the things you think should be included. While it’s important to keep in mind that the particulars of your agreement will make every contract unique, here are some items that should be included in any legally binding contract:
- The agreement
No contract is ever drafted in a vacuum; each one serves a specific purpose. For that reason, the agreement is paramount in any legally binding transaction. For example, in a landlord-tenant relationship, the parties’ contract would spell out the terms and circumstances under which the landlord would grant the tenant access to their property in exchange for a monthly rent payment. This information must be included, regardless of where it is placed. Courts will not recognize and will not assign value to a contract if it lacks an object. Make an effort to spell out the terms of the agreement precisely so that there is no room for future confusion.
- Each party
A “party” is any individual or entity that has a stake in the agreement.
The landlord and renter are the two sides involved in a rental arrangement, for instance. The first paragraph of any contract should contain the parties’ full legal names and addresses, so be sure to double-check and include them there. This will make sure that everyone knows who is responsible for what in the contract, and it will also make it easier for one side to get in touch with the other in the event of problems.
- “Consideration”
First things first: “consideration” is just a legalese word. Money is usually all we need to mention. We could usually just say “money” in most situations. The tenant’s monthly rent payment would serve as the compensation in our example of the rental agreement. But this phrase encompasses not only monetary but also non-monetary forms of value. That said, you should expect to be drafting a contract for an arrangement that suggests the exchange of products or services for money. To ensure that the paying party is legally obligated to make certain payments, it is important to insert the consideration within the contract.
- Legal provisions
Legal contracts have a poor rap because of their terms and conditions.
Can you tell me how often you’ve been asked to sign a contract with a mountain of fine print? No matter what, in writing an agreement, you must always incorporate a clause outlining the terms and conditions.
These will spell out the responsibilities and privileges of each party.
Basically, this is the chapter where the parties lay down their respective agreements in the most explicit way possible.
- Recognition of competence
To prevent minors and other individuals who lack the mental capacity to enter into legally binding contracts from getting into abusive ones, safeguards are in place. A statement attesting to the mental and legal competence of each party to sign the contract is necessary for the contract to be legitimate under law.
- Signature and date section
There is no use in having a contract without a signature. The only way for an agreement to be legally binding is for both parties to sign it. Because of this, make sure to leave space for each side to sign the contract. Furthermore, it is mandatory to include a date on the majority of contracts. This is necessary in case of any problems down the road, but it can also have other consequences; for example, some contracts have an effective date that is explicit in the contract, while others have an agreement that is binding immediately upon signing.
Electronic signatures have mostly replaced paper ones in recent years, allowing for instantaneous document archiving on-premises or in the cloud and drastically cutting down on paper usage. To eliminate paper, speed up processes, and replace outdated file cabinets with safe cloud storage, most PandaDoc clients have long already adopted electronic signatures. This works in tandem with tools for creating, managing, automating, and collaborating on documents. Not only that, but in January 2024, there were more than 37,000 active eSign users, and nearly 100,000 accounts had electronically signed papers at least once.
A comprehensive guide on the art of contract drafting
You can now begin drafting your contract as you have all the necessary information. You may confidently write the contract by following this step-by-step checklist:
- Recognize your parties
There isn’t a single contract out there that doesn’t contain the parties in the first paragraph. Before beginning work on the contract, make sure to ask the other side for this information.
- Accept the conditions
From the very start of making your contract, you need to be as clear as possible. The contract will be easier to write and comprehend, and future contract administration will be a breeze as a result. That is why, before you begin to design the contract, you should ensure that all parties are in agreement with its parameters. Gather the involved parties around a table if that’s what it takes to physically write out the terms of the agreement. But for basic agreements, it should be enough to get the parties’ written intentions.
- Establish firm limits
Assume for a moment that someone has offered to wash your vehicle.
Does the fact that they have just spent the entire day cleaning it indicate that they have completed their duties?
Well, if the agreement is vague about when the service would begin and end, the provider could claim they never promised to cease washing your car, which could lead them to refuse to leave your driveway.
Although this kind of dramatic disagreement is highly implausible, it does show how critical it is to include a termination date in the contract after outlining the main agreement. A termination clause is necessary in every contract, but especially ones involving continuing work; parties may use this provision to terminate the contract early if they so choose.
Lastly, remember to incorporate a force majeure clause to account for cases where contract performance becomes impossible due to circumstances beyond human control.
- Clearly state the consequences
Contracts represent an act of sincere intention. But since things don’t always work out as planned, it’s important to handle contract risks early on. After you’ve written up the agreement and decided how long it will be in effect, the next step is to spell out what will happen if either party breaches the contract. Depending on the nature of the contract you’re creating, these will vary. For example, if a renter is late with rent or causes damage to the property, the terms of the rental agreement should address these issues. A contract is basically useless without these kinds of safeguards.
- Outline your plan for handling disagreements
Because parties may dispute over the agreement’s non-enforcement, penalty provisions alone may not be sufficient to handle these kinds of problems. You need to get the various parties to settle their differences by agreeing on a process, like arbitration, mediation, or civil litigation.
Including this in the contract will make resolving issues much easier.
- Protect sensitive information
Certain parts of a contract may contain sensitive information that needs to remain secret, such as a trade secret or confidential financial data.
You should include a confidentiality clause in the agreement if this applies to you. Any disclosure of this information will be a violation of the agreement.
- Verify the contract’s validity
Producing a document that is both legally enforceable and, where relevant, completely compliant should be your primary concerns when considering how to draft a legally binding contract. If you want your contract to be practical, you need to check that it doesn’t break any rules or laws in your area. (Take any uncertainty as a signal that you should consult an attorney.)
- Make it negotiable
No doubt you’re thinking that’s a lot of effort. The bad news is that it may require more than one attempt! The parties should make every effort to negotiate the terms of the contract before signing it. This process could be lengthy and fraught with back-and-forth, but it is usually well worth it in the end. Get the deal done more quickly and easily by following the advice and suggestions given on contract negotiation. If you’ve put in the time and effort to properly prepare the contract and understand its context, though, everyone involved should be happy with the end result.
Helpful hints for crafting a logical contract
You have now learned the ins and outs of drafting a contract agreement. However, what about the words that make up a contract? To ensure that your agreement is comprehensible, consider the following:
1. Minimize complexity
Do not let your imagination and oratory skills go wild when drafting a legally binding agreement. Avoid using jargon or legalese wherever possible, and don’t overload an agreement with sophisticated syntax and wordy expressions; doing so will just make things more difficult.
Rather, keep your language simple and keep in mind that you are writing for multiple audiences, including the parties now and any future lawyers. That is to say, make sure that every clause in the contract is brief and to the point.
2. Be wary of modal verbs
Be cautious when using the words “may,” “shall,” and “will” in a contract. “Shall” denotes an obligatory action on the part of a party; for example, “the tenant shall pay rent each month.” In contrast, “will” denotes an event that does not necessitate an obligation on the part of a party. Just as “may” usually means “reserves the right,” so too does “can.”
3. Do not use words that are interchangeable
Despite our tendency to use a wide variety of words and phrases while composing, it is best to use the same ones and refrain from using synonyms when drafting a contract. Although this can eliminate future ambiguity and confusion, it could make your contract seem repetitious at first (for instance, you might grow tired of using the word “services”).
4. Divide and conquer
When drafting a contract, keep ease and clarity in mind. If you want your contract to be easier to read and understand, break it down into smaller parts and subsections. Use bullet points instead of long blocks of text whenever you can.
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