In order to fully comprehend the concept of contract drafting, it may be helpful to know what a contract is first. A contract is generally defined as a legally binding agreement made between parties that acknowledges the rights and duties that govern the arrangement. Contracts can be formed through a writing or created by oral agreement. For the purposes of contract drafting, this only refers to written agreements.
A contract is a legally binding agreement between two or more parties. A contract provides details of what the parties agree to perform or exchange. A contract may be in written or oral form. In most cases, in order to be legally binding, a contract must be in writing and signed by all parties involved. Courts generally require three things for a contract to be enforceable:
- Mutual assent, or agreement to the contract terms;
- A valid offer and acceptance; and
- Consideration.
Contracts are considered the foundation of the business world. They may be simple or very complex. Examples of contracts include employment contracts, real estate purchase contracts, and insurance contracts.
Contracts must be entered into by all parties voluntarily. All parties signing the contract must do so of their own free will and not under duress. Contracts can be used any time parties want to document an agreement to make sure all parties' rights are protected.
Drafting a contract refers to the act of writing the terms and details of a contract to determine and outline the legal obligations of all parties to the contract. This allows all parties to the contract to have a clear understanding of their duties and legal obligations to one another.
A contract can be drafted by anyone, but it would be in the best interest of all parties involved to have an attorney draft a contract, especially if it is detailed and/or complex. For example, a real estate contract often involves multiple parts, multiple parties and complex land descriptions. In order to ensure your sale or purchase, financial investment, and rights are protected, having an attorney draft this type of contract would be preferable.
A contract will also provide sections outlining whether or not it may be cancelled and how to cancel it. The contract will also outline the consequences if a party breaches the terms of the contract. Aa well-written contract will contain clear definitions of what constitutes a breach of the contract so all parties can uphold their duties.
The parties to a contract may go through several drafts and negotiation sessions before the official contract is finalized. The goal of contract drafting is to create a legally binding document in writing that is clear, concise, and as close to the parties' intentions as possible.
The drafting process can be very beneficial for contractual agreements. One benefit of the process is that it allows the parties to discuss the terms of the contract before it becomes binding. This can help to prevent legal disputes over the contract from arising in the future. In the event that a legal dispute does occur, it can also serve as evidence of the parties' original intentions and their obligations.
Finally, contract drafting can be used to ensure that the parties understand their respective duties and as guidance if any issues emerge while they are in the midst of satisfying the contract. This is especially true in situations where the contract involves complex conditions.
What Are the Elements of a Legally Binding Contract?
In order to be legally binding, a contract is required to contain certain elements. Some contracts must be in writing in order to be valid, such as contracts for an amount of money over $500.00. A contract must be made for a legal purpose. For example, an individual cannot contract to commit a crime. It is important to be familiar with the requirements of a valid contract.
A valid contract must include:
- An offer;
- An acceptance of the offer;
- A promise to perform;
- A valuable consideration;
- A date, a time window or an event when the performance must be completed;
- Terms and conditions of the performance; and
- Performance.
The offer and acceptance elements of a contract are also known as the “meeting of the minds,” or mutual agreement of the parties. The singing of the contract by all parties is often used as evidence of that agreement. In some cases, offers may have an expiration period, where the offer is open for a reasonable time. Some offers may not have a time limit. Offers can be revoked until the time of acceptance.
Acceptance occurs when the parties agree to the terms of the offer. If a change is made to the offer terms, it would be considered a counteroffer. Different states have different laws in this area of contracts, so it is important to review local regulations.
For a contract to be valid, consideration must be provided. Consideration occurs when both parties agree to provide something of value in exchange for a benefit. Consideration must be something of value and can include money, a vehicle, or manual labor.
For a contract to be valid, all parties must be legally competent. There are individuals who cannot enter into contracts, such as minors or the mentally impaired. A party must be of sound mind and not under the influence of drugs or alcohol at the time of contracting. All parties to a contract must be free from duress at the time of contracting. Contracts will be declared void if there is a mistake, duress, or fraud by one or more parties.
What is the Statute of Frauds and to What Contracts Does it Apply?
Under the Statute of Frauds, courts will not enforce certain types of contracts unless they are in writing. The purpose of the Statute of Frauds is to attempt to prevent fraudulent acts. The types of contracts governed by the Statute of Frauds include:
- Marriage contracts;
- Contracts not to be performed within one year;
- Contracts involving an individual's promise to pay the debt of another;
- Contracts wherein an estate executor agrees to personally pay debts of the estate;
- Contracts involving the sale or transfer of land; and
- The sale of goods over $500.00.
The Statute of Frauds is governed by the Uniform Commercial Code, or “UCC.” The UCC is a model statute that has been adopted by most states in the U.S. It is most often used to resolve contract disputes over the sale of goods. The Statute of Frauds may vary from state to state, but most are similar to the UCC.
What Constitutes Adequate Consideration?
Adequate consideration is what must be exchanged for a contract to be enforceable. As noted above, consideration must be something of value. There are certain principles a court may consider when determining adequacy of consideration:
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- Consideration may be a promise to do or not do something, such as a promise to quit drinking alcohol;
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- Past consideration, or a promise to perform a duty that has already been performed or an act the party is already legally bound to do, is never adequate;
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- If both parties agree to the consideration, even if it may not appear adequate, it may be considered adequate;
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- Consideration based on an illusory promise or a worthless item is never adequate;
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- Consideration cannot be nominal, where the amount or performance promised is too low for a court to recognize, often the sum of $1.00; and
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- Consideration is not adequate if it violates public policy because the law cannot recognize such an exchange.
When Is a Contract Not Enforceable?
A contract may not be enforceable under certain circumstances. As discussed above, a minor or mentally incompletnet individual cannot enter into a contract. A contract may not be enforceable if there is not adequate consideration. A contract may not be enforceable if there was a mistake, fraud or one of the parties was under duress.
How are Contracts Drafted?
Although contracts may be drafted by any individual, it is often recommended that a lawyer draft and review the final terms to ensure that the contract is legally valid and binding. The parties to a contract will usually be the ones to decide how a contract will be drafted, but it can also depend on the type of contract being created. For instance, employment contracts contain certain provisions and specific terms that differ from the language found in confidentiality agreements. Generally speaking, however, most contracts follow a basic format and include standard components, such as important words that need to be defined, legalese that indicates the beginning and/or signals the end of a contract (e.g., a signature block), the rights and duties of the parties, how the parties can terminate the contract, general provisions, and some incorporate special clauses (e.g., insurance policies).
In addition, regardless of the type of contract, all contracts must contain the following elements:
- An offer;
- The acceptance of that offer;
- Consideration (usually money);
- The contract must identify its parties and those parties must possess the legal capacity to enter into the agreement;
- The subject matter of the contract must be one that is legal (e.g., cannot create a contract to hire a hitman);
- There must be mutual agreement between the parties; and
- The parties must have a mutual understanding of their rights and duties under the contract.
Many contracts also contain specific terms and conditions. Some common contract drafting terms and conditions include:
- Force majeure;
- Arbitration clause;
- Indemnification;
- Assignment;
- Confidentiality;
- Warranties;
- Choice of law and forum selection;
- Time is of the essence clause;
- Severability; and
- Liquidated damages clause.
The above terms and conditions all pertain to either events that trigger conditional consequences, duties that the parties are legally obligated to perform, and/or duties that the parties must refrain from or else they risk breaching the contract.
What is Contract Review?
Legal contract review refers to when a party to a contract hires an attorney to review the terms and conditions of their contract. It is strongly recommended that an attorney conducts this review before a party signs the contract. An attorney should also be consulted to review a contract when there is a legal dispute concerning the contract. An attorney will know what to look for and already understands the process of precisely how to review a contract.
In both scenarios, having an attorney review the contract can protect a party against future or current legal disputes. This is because the contract is typically the most important piece of evidence in a legal matter. It is usually the first document consulted, regardless of whether the matter is resolved before a court or settled outside of a courtroom.
During a contract review, an attorney will look for certain items, such as whether the contract is clearly written and provides unambiguous terms, contains straightforward language or defines technical jargon, and that it complies with the law. An attorney can also ensure that a party understands all of their duties and obligations under the contract, and can change or amend provisions that the party did not intend to include in the agreement.
What Are the Advantages and Disadvantages of Hiring a Lawyer to Draft or Review a Contract?
There are several advantages and disadvantages to hiring a lawyer to draft or review a contract. Some benefits of hiring a contract review attorney may include:
- Preventing future breach of contract issues and other legal disputes;
- Avoiding the chances of forming an illegal, unconscionable, or voidable contract;
- Acquiring a clear understanding of the duties and obligations of all parties;
- Ensuring that all terms and conditions in the contract are what the parties intended;
- Incorporating additional terms and conditions in the contract that a party may have left out and could be beneficial to them; and
- Identifying protections or rights that a party has, which can be used either as a defense in a lawsuit or to take legal actions against another breaching party.
On the other hand, some drawbacks of hiring a contract review attorney may include:
- Spending unnecessary funds on hiring an attorney to review a simple and straightforward agreement;
- Having to wait for an attorney to review a contract, which in turn, will delay signing it and moving forward with a business deal;
- Creating a contentious atmosphere rather than making it a friendly agreement between business contacts;
- Hiring the wrong attorney and risking that they do not understand the benefits of a deal or the nature of a business; and
- Potentially drafting a contract that ends up being longer and more complex than the parties' original version.
Should I Hire an Attorney to Assist with Contract Drafting and Review?
Drafting and reviewing contracts can be a fairly complicated process, especially when a contract involves complex matters. Therefore, if you need help with drafting and reviewing a contract, you should hire a local contract lawyer for further assistance.
An experienced contract lawyer can make sure that your contract complies with all relevant laws and that it will be considered legally valid in the event of a legal dispute. Your lawyer can also ensure that it contains the terms and conditions you desire, and can negotiate for supplementary terms that may be beneficial to you or request that unfavorable conditions be removed.
In addition, your lawyer can help you draft a clear and unambiguous contract, can explain any terms or conditions that you do not understand, and can answer any questions that may arise during the contract drafting and review process.
Finally, if a contract dispute arises or if you wish to take action against a party who breaches the contract, your lawyer can provide representation in court on the matter or can help you resolve the issue outside of a courtroom.
