How to Write A Legal Contract (Part 1)

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A contract is nothing more than a written record of a business deal made between two or more parties. It’s a recording of intent – what you believe is supposed to happen in connection with the deal – that is written in such a way to make it legally binding. In other words, if someone breaks the deal or changes the terms, you can take them to court and ask the court to force the other party to honor the deal as originally written.

You don’t need to be an attorney or paralegal to write a contract, nor does a contract need to be 100 pages long to make it effective. But attorneys and paralegals DO know the things that go into a contract to make it binding and enforceable. The law says that you must write certain things into every contract. If they’re missing from your contract, it may not stand up in court if challenged. I’m going to be talking about those essential elements over my next few blog entries.

Intent Comes First

There’s actually 11 things that you need to have a contract, but the first one is often intangible and never makes the final draft. That would be intent. You and the party (or parties) you’re contracting with must all intend to be making a binding contract.

This is the first place where things get sticky, because you might think you’ve entered into a legally binding deal, but the guy you made the deal with says, “No, we were just talking over drinks. I didn’t agree to anything!” So it’s important that you not assume anything and start taking action on a deal, based on that assumption.

On the other hand, if you think there was intent and agreement and the other side is having “buyer’s remorse,” then you’ve got a problem. This is where a legal doctrine called the Objective Standard comes into play. The Objective Standard is something developed by the courts, through years and years of litigation, and basically says: “What would a reasonably educated bystander think, after looking at all of the facts relevant to the agreement?” If he or she concluded that there was intent and there was agreement on the essential terms, then the contract will usually be considered binding and will be upheld.

With that out of the way, let’s take a look at the first two of essential terms: Offer, and Acceptance.

Essential Term #1: Offer.

There are no particular words that have to be used to make an offer. An offer is simply a statement or other indication that you want to enter into a deal with someone else on certain terms. It must also be unconditional. Your offer can’t require the other side to do anything else but agree – simply say “Yes, I accept your offer.”

You also need to stick to your original terms. If someone accepts your deal for XXX, and you then say, “whoops, I forgot something, it should have been YYY,” you can’t hold the other side to their agreement. What you have really done is withdrawn your original offer and made a new one – leaving the other side free to accept your new offer, or even to insist that you perform the contract you offered under the original terms.

Something else to understand is that an offer needs to be more than an invitation. Shopping in a store is a great example. The price tags aren’t an offer – they’re an invitation. It’s when you get to the counter that the offer is made. You are offering to buy the product at the price labeled. The merchant can then choose to accept the offer, and take your money, or not. If someone switches tags and you try to buy that $2000 couch for $1000, the store owner is perfectly entitled to say no – it’s mislabeled.

Essential Term #2: Acceptance.

Acceptance is simply an indication by the person receiving the offer that they are accepting it. Their acceptance must be clear and absolute and without conditions attached. So if I make you an offer to “set up your corporation for $850,” if you say “Wow, that’s a great price,” you haven’t accepted my offer. If I go ahead and do any work on your behalf, that’s on my dime. I can’t ask you to pay for it. But if you say “we have a deal,” or “I agree,” or “here’s my credit card information” (my favorite answer), THEN we have a deal and I’m entitled to collect $850 from you.

Most offers have a time limit, and to accept the deal you’ve got to act within that time limit. Once it’s expired, you can’t take up the offer unless the person making it agrees to extend the offer. A car deal is a good example. If your dealer says “You can buy this car for $16.5 if you can bring your financing in within 48 hours,” and you take 2 weeks, the dealer is perfectly entitled to refuse.

When there is no time limit on a deal, the law says that you have to give a “reasonable” period of time for an offer to be accepted. What’s reasonable depends on the particular circumstances of each case.

Can you withdraw an offer before it is accepted? Yes – as long as one of your terms isn’t “this offer will remain open for XXX,” and you withdraw the offer before the time for acceptance is over.

Can you add a condition to your acceptance, like “I’ll pay you $850 to form the corporation if you form my next one for $650?” No. What you’ve really done is make a counter-offer. That means we’re still negotiating, and I am free to accept your offer or not.

I’ll be back in a couple of days to talk about Essential Terms #3 and #4: Consideration and Date.

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