What is the Utility of a Contract Agreement?
The fundamental reason for having a contract agreement letter, whether for commercial or personal matters, is to create a binding record of the arrangement between the parties. A contract agreement defines relevant terms such as the obligations of each contracting party, applicable governing law, the duration of the agreement, payment methods, and other related information. While contract agreements without witnesses or notarization are legally enforceable in most instances, specific types of contracts such as agreements in connection with real property purchases may require notarization. Even without notarization , failure to create a written contract agreement can make it difficult to recover costs due to breaches. For example, in some jurisdictions, an oral contract requiring more than one year to be performed is not legally enforceable. Actual performance of an oral agreement can also be used to enforce a written contract agreement. For a contract agreement related to a personal relationship, if one party changes his/her mind, it can be challenging to prove that the agreement was made.
Components of a Contract Agreement Letter
First, the essentials. An offer (expressed or implied) and acceptance of that offer. A commitment of things needed or expected in return. Any exceptions to that offer. A specific period when the offer is valid. A "signing" and "returning" of the offer. And any disclaimers or confidentiality notices required by anyone involved. Those are the nominal components.
But what about the stuff that goes in between? What is the best format to ensure that "you’ve been heard"? All of it, i.e. the offer and its acceptance and the things needed or expected. Details and timeframes. Everything! Those particulars are essential for successful contract agreement letters.
The offer is fairly straightforward. The acceptance—sometimes not so much. Consider: If the accepted offer does not contain the terms and conditions to which both parties had agreed (whether or not that is deliberate), the offer has not actually been accepted. The actual acceptance of an offer is a legally binding sound bite that states without reservation all parties audit each provision (or clause) of the offer. In other words, if John and Mary reviewed the offer in its entirety before they returned it, that is acceptance—not acceptance with an exception. As far as contractual law is concerned, anything less than an unequivocal, absolute acceptance is an exception that renders the agreement null and void.
The two critical components of a contract agreement letter are consideration and mutual consent. That is, until we add the not-so-subtle addition of legal capacity (which can be administered differently). Absent consideration, template contract agreement letters will fail to produce a legally binding document.
Consideration is tantamount to money changing hands, but because a contract agreement is as binding on a person or company as a signature, it is not an inexpensive undertaking. And that’s a good thing; otherwise personal and/or corporate investments could be subverted, situations co-opted and adult play dates would be a go-to.
For example
Art wants to buy a luxury convertible from CarMax using three months of interest on his money market account.
CarMax: We’ll gladly accept a partial payment, in this case interest, on the condition that you intend to pay the outstanding balance in full within 90 days.
Art: Here is my money market account statement. I agree to your terms.
CarMax: Okay then! Your credit card statement can suffice as a guarantee.
How to Write a Clear and Specific Contract Agreement
The key to drafting an enforceable contract agreement letter is to use specific and clear terms throughout. The reader should not have to guess what you meant when writing a contract agreement. Some of the most important tips on drafting a clear and specific contract agreement include:
Clear Title
When creating a contract agreement letter, you should provide a clear title. For example, you may choose to label your contract using the words "contract agreement," or "beginning of employment letter." You may also choose a simple title that describes the contract letter.
Definition of ‘Employer’
Normally, the contract will define the term "employer." For example, you may choose to define the term and provide a brief description of who is considered the employer, including any additional companies in addition to your own. Defining the term "employer" will help eliminate any ambiguities that may occur.
Definition of ‘Employee’
You should also specifically define the term "employee" in the contract agreement letter. The definition should outline the rights and duties of an employee and the reasons for employment with your company.
Wages
Clearly state the employee’s wages for the work performed. Clearly listing the type of compensation as well as the amount will eliminate confusion later on.
Job Duties
Clearly state the types of job duties to be performed by the employee. You may want to add each job duty in a bullet point list to ensure clarity of each duty.
Benefits
Clearly state the types of benefits provided by the company. The employee should be able to refer back to the contract agreement letter and easily understand the benefits received while working for the company.
Confidentiality
A confidentiality agreement should usually be included in a contract agreement letter. In this clause, you should clearly state that any and all confidential information is to remain confidential. It should be made clear to the employee that disclosing any confidential information could be grounds for being dismissed from employment, in addition to possible legal action.
Amendments
After you’ve created the initial contract agreement letter with the employee, you may decide to amend the letter at a future date. Make sure that the amendment is clearly stated and in a written format. It’s best to provide an amendment template, which the employee can then sign and return. Many people find the amendment attachment the most useful, since they don’t have to worry about overlooking an important point in the contract agreement.
Format and Structure of a Contract Agreement
Formatting and structuring a contract agreement letter in a professional manner is equally as important as the content itself. The choice of format can convey the seriousness and importance of the agreement, while a well-organized structure helps to ensure that both parties can easily navigate through the document.
When drafting a contract agreement letter, make sure to use a clear and readable font, with adequate spacing between lines and sections. Standard font sizes range from 10 to 12 points, depending on the length of the document. The text should be fully justified and margins set at a minimum of one inch on all sides.
Establishing a clear structure and logical flow for your contract agreement is critical. Starting with the essentials, precede the body of the contract with the date, place of writing, and the names and addresses of the parties involved. After this introductory information, provide a clear introduction that establishes the type of contract. For instance, if you are entering into a purchase and sale of a vehicle, your introduction could begin with "This contract is registered and made between [Buyer’s Name and Address] and [Seller’s Name and Address]."
The body of the contract should be well-structured and organized into logical sections. You can either number each section, such as 1.1, 1.2, or group them under headings like Section 1, Section 2, etc. Whichever method you choose, it is essential to keep a consistent system throughout the document. Organizing the clauses into sections such as "Definitions", "Obligations and Duties", "Liabilities", and "Termination" can also be useful.
The use of bullets and numbered lists is also advisable for ensuring clarity. It makes the document easier to navigate and review for both parties. A properly structured contract will aid both parties in referencing specific sections when discussing or negotiating points throughout the process. It also helps in reducing or avoiding any unnecessary disputes.
Things You Must Avoid
A good contract agreement letter can be the foundation for a successful business relationship. This is the initial roadmap for the interaction and while it need not be perfectly descriptive , it should be clear enough that the expectations of the parties are cemented early on. Some common pitfalls to avoid: The deal is ultimately going to be as good as the information you put into the agreement letter. The best course of action is to give it all due consideration and time.
Editing Your Contract Agreement
The final crucial step in mastering the art of contract letter writing is reviewing and finalizing your contract agreement. Once you’ve put in the work of writing out the contract agreement letter, it may be tempting to simply send it on its way. This is a mistake. It’s essential that you properly review your contract agreement for errors, omissions, and confusing language. Correcting even the smallest errors in language and structure can help make your agreement contract more clear. This will minimize any confusion, even when the matter is not one that’s legally challenging. However, once you’ve reviewed the agreement, you should always have the letter reviewed by a legal professional, given that the details at play may be complex or you may not be familiar with all the specifics of the law you’re dealing with. A legal professional has the expertise and experience to help ensure that your contract agreement letter ticks off every box in terms of legality and helps eliminate any potential pitfalls. Once you’ve received your contract agreement letter back from its initial review, make the final edits. Now it’s time to finalize and execute the contract agreement letter. Cordon off a time when you and the other party will be able to meet for the purposes of finalizing and executing the agreement. When you meet, discuss with the other party the legal document as a whole and dispute any parts you don’t find acceptable. Understanding and accepting the contract agreement letter’s intention is absolutely vital. After discussing the contract agreement letter with the other party, you will need to finalize the contract with their signature. It’s often best practice to finalize the document in person, rather than sending it through the mail, so that you can deal with any questions or issues. Make sure you’ve signed the document as well.
Legal Considerations and Resources
It is always recommended to consult with a legal professional when drafting an important contract agreement letter. There can be serious repercussions (including financial liabilities and legal ramifications) to you or your business if your agreement is poorly written or even worse, not written at all. There are many resources available out there, including several templates and online services, that can help you get started on your legal agreement letter.
Many law offices offer a service where you can go online , filled in the blanks of information, and the site will generate a contract agreement letter for you. Other sites provide templates that you can personalize by editing the text directly into the document. Regardless, if you decide to use one of these tools or templates, it is essential to have the contract reviewed by an attorney before you put pen to paper or hit [SEND] to finalize the document.