“It takes 3.4 weeks to create and approve the average contract.” (Source: Forrester Research)

“Most large organizations have about 20,000–40,000 contracts.” (Source: PwC)

“35% of law professionals feel contract management is a legal responsibility, while 45% feel it’s a business responsibility, and a final 20% is unsure where it belongs.”

What Are Contracts and Agreements?

While the two terms are often used interchangeably, contracts and agreements have distinctive characteristics that differentiate one from the other. We define an agreement as an understanding between parties that requires the mutual acceptance of those involved. Agreements that are made verbally or informally usually have no legal effect because they lack the required elements to be enforced by a court of law. Such arrangements take the form of a gentlemen’s agreement in which the conformance of terms would depend upon a party’s honor as opposed to an exterior means of imposition.

Contracts, on the other hand, are a specific type of agreement comprised of a series of elements designed to form a legally binding relationship between two or more parties. Although verbal contracts are still legal in certain situations, most contracts need to be documented in written form to make all possibilities and conditions explicitly clear. The contract must also meet the set criteria in order to support the claims or decisions made during a dispute.

49+ Sample Contracts and Agreements

 

Types of Contracts and Agreements

There are several different types of contracts and agreements, including those that are specific to certain industries and those that overlap. Using these legal documents to solidify the arrangements made between yourself and other parties is essential in the world of business. If you intend to get into a formal relationship with clients or shareholders, understanding the purpose of each contract and agreement type is sure to provide your business with the right level of legal protection to continue operations.

Unilateral and Bilateral Contracts: Unilateral contracts are known as one-sided contracts in which only one party provides something of value in the exchange, while bilateral contracts require both parties to make promises for the mutual benefit of those concerned.Express and Implied Contracts: Express contracts clearly communicate the details and promises of the arrangement either orally or in writing. The document contains terms and conditions that are stated openly to avoid ambiguity or misunderstanding. On the contrary, implied contracts have terms that need to be inferred by facts or circumstances that would point out the parties’ mutual intent to form an agreement. What makes these contracts difficult to enforce in court is their lack of formality to prove whether or not the contract exists. Thus, express contracts are highly preferable over the latter.Valid or Voidable Contracts: A valid contract is only recognized as such if it contains all the essential elements that form a legal contract. If it’s missing at least one of the necessary elements, then the contract may be voided by law. Knowing the difference between the two will make it easy for you to determine whether the agreement presented to you by the opposite party meets the standards of an enforceable contract.Fixed-Price Contracts: Fixed-price contracts are better known as buyer-seller agreements due to their intended function. The contract provides a price for the product or service to be rendered based on pre-determined factors. Though they don’t normally subject to adjustments when the contract is in effect, considerations are made if certain provisions that authorize these changes are indicated in the agreement. Regardless, it still puts the contractor at risk of losing money on the project, especially when the cost of materials rise unexpectedly.Memorandum of Understanding: Commonly known as a Memorandum of Agreement, an MOU is typically used to confirm the terms that are written in a contract to see whether it reflects that from an oral agreement. It describes the basic principles of the arrangement under which the parties shall fulfill to reach their end goals. MOUs are also tailored to suit individual circumstances and ensure that both parties have agreed upon the provisions before they are executed.Acquisition Agreements: When one company acquires another company, whether it’s a stock purchase or an asset purchase, acquisition agreements are involved. Given the scope that it covers, the agreement plays a critical role in the transaction to ensure that all terms and conditions are fully understood. This can greatly impact how the sale of a company is navigated as both parties gradually settle to the changes that occur as transactions are finalized.Partnership Agreements: Two or more owners that wish to invest in a business together are urged to form an agreement that will protect them from future disputes. The partnership agreement sets forth the contributions as well as the duties and obligations that each party is expected to perform under the provisions included. The agreement should also cover the possible areas that may trigger serious issues between partners, particularly in regards to investments, contributions, and profit distribution.Non-Disclosure Agreements: Non-Disclosure Agreements, or NDAs, protect sensitive information from being revealed to competitors or the general public without proper authority. Here, shared information between two parties is kept confidential during the course of preliminary discussions or any ongoing project to prevent possible problems that could damage a party’s reputation or cause an obstruction. Some companies even prepare NDAs separately from their original business contract as an extra effort to safeguard proprietary or trade secrets from being disclosed.

Essentials to Create an Enforceable Contract and Agreement

While agreements only need a mutual understanding of each party’s rights and responsibilities in the arrangement, contracts contain key elements that are more stern and precise. These requirements will determine whether the contract may be enforced in a court of law. As long as the agreement meets all of the necessary components, it will constitute a valid and legally binding contract.

Offer and Acceptance: In contract law, one of the indications of a legal contract is when one party makes an offer and the other party accepts it. Once you accept an offer made by the other party, a contract is then formed, making you liable for your part of the bargain. But not all offers are quickly accepted, as the other party may want to assess the situation and try to get a better deal. Since delaying an acceptance or revoking an offer may lead to a dispute, you want to prevent this from occurring by setting some ground rules early on.Mutual Consent: A business contract is only valid if both parties had consented to it without coercion. Every party involved in the contract must agree to its terms for a binding agreement to be formed. Otherwise, if either party had been urged to sign the contract beyond their free will, the contract would not be deemed valid.Consideration: There must always be something of value to be exchanged between parties, whether it’s money, goods, or services. It’s basically the essential reason why any party would enter into a contract. However, illegal or immoral acts that go against public policies are prohibited from being bargained regardless of the circumstance.Competence: The parties entering into a contract should possess the complete legal capacity to be held liable for the duties and obligations that were agreed upon. This definition requires that neither party is a minor, under the influence of drugs or alcohol, or mentally deficient when signing the contract. The law assumes that anyone who fails to meet the desired requirements is incapable of understanding the general nature and consequences of the agreement being entered. These agreements may be disavowed by the non-competent party, with only a few exceptions.Legal Purpose: An enforceable contract or agreement is always built on legal grounds. This means that the agreement cannot cover any acts that are considered illegal under state laws. If your contract happens to involve any form of criminal activity, it’s impossible to seek the assistance of the authorities to have your issues resolved in court. In other words, contracts and agreements must fall within the confines of lawful conduct in order to provide protection to the concerned parties.

The Dos and Don’ts of a Contract and Agreement

Businesses of all sizes rely on contracts and agreements to operate effectively on a day-to-day basis. But the complexity and value of these documents require parties to fully understand how contracts and agreements should be made to avoid serious problems down the road. To get the best possible deal in the negotiation and protect your business from unwanted issues, knowing what to do and what not do in agreement and contract writing is sure to generate favorable outcomes.

The Dos

1. Do agree on definitions. 

All major terms included in the contract or agreement should be defined completely. Incomplete or missing definitions only make it difficult for parties to grasp the true meaning of each clause based on what the author originally had in mind. Note that certain terms can be interpreted differently from business to business. Thus, professional contracts must spell out exactly what is meant by these terms to avoid confusion and misinterpretation.

2. Do identify the other party. 

Properly identifying the parties involved is crucial in contract writing. In most cases, it isn’t you personally who is entering into the contract rather, the company or organization that you represent. Businesses that have subsidiaries or a part of a holding company must also indicate this matter in the document. Experts suggest conducting your own research on the identity of the other party to make sure you know exactly who you are getting yourself involved with.

3. Do limit the use of jargon. 

Contrary to what many believe, speaking in legalese is not an inevitable part of contract writing. This style of writing can be risky for companies that deal with clients from a different line of business, as it’s likely that one party’s interpretation of these statements would vary from the other party’s definition. Jargon can also cause complications among parties from opposite sides of the industry. If necessary, you could include these technical terms in the glossary of your contract or agreement. This approach will make it easy for the parties to understand the duties, rights, and procedures of the arrangement that concern them.

4. Do be wary of ambiguity.

When it comes to written contracts and agreements, ambiguity can be a common cause of disputes among parties. It is considered ambiguous once readers can find more than one way to interpret what is written in the document. Although matters like this can often be resolved through further discussions, there are instances when the parties would have to raise the document to court for proper evaluation. Vague terms, words, phrases, or definitions in a contract are usually examined through the common usage, parol evidence, industry usage, implied meaning, or prior dealings that will help the court understand the parties’ intentions.

5. Do get a second opinion. 

It’s never a good idea to sign a contract or agreement without the assistance of an attorney. It’s best to take the document to a lawyer that specializes in contract writing as well as the laws in your state. You don’t have to let the attorney rewrite the whole thing, but you can consult them for advice regarding any changes that need to be made. This will also give you a better idea of what’s at stake before any of you get the chance to end the negotiations and finalize the deal.

The Don’ts

1. Don’t mislead the other party. 

Any comment you make, whether it’s in an email or a telephone conversation, may become a part of the contract itself even if it wasn’t in your intention. Hence, you need to be mindful of how you communicate with other parties. Choose your words carefully and make sure your statements don’t give the wrong ideas. If you have reason to believe that the other party might have received false or inaccurate information, immediately make the necessary corrections before things get any worse.

2. Don’t use more words than necessary. 

Using an excessive amount of words can potentially cause problems in the way your statements are understood and interpreted. When drafting your provisions, you have to consider the possibility that the difference between two relatively similar terms can sometimes be difficult to distinguish. If anything, you’re better off with keeping it simple. It’s more important to focus on communicating with clarity than it is to impress your peers with complex wording. That way, you can deliver your points clearly enough for readers to fully grasp.

3. Don’t include terms and conditions that are hard to understand. 

It’s not enough to simply have an idea of what one party is trying to convey, as this will only lead to arguments later on. Choosing to settle with the terms and conditions without proper understanding could jeopardize your business in the worst way possible. Without your knowledge, you could be entering into an agreement that will hinder your business from attaining success. Knowing the exact meaning of each provision is crucial to the current and future state of your company.

4. Don’t assume. 

In connection with the previous item, you don’t want to assume what something means even if it is already written on paper considering how you and the other party could be thinking of two different meanings. It’s best to have everything clarified as soon as possible before moving forward to the next step of the process. Feel free to ask questions and make follow-ups if certain clauses seem unclear to you or need to be rewritten.

5. Don’t sign the contract without reviewing. 

Never allow the contract or agreement to be executed without getting the chance to review the document along with its references. It’s easy to make alterations without your knowledge for a party’s personal gain. You have to make sure that the contents of the agreement continue to reflect the interests of both parties. If you have reason to believe that the contract had been compromised without your permission, you can opt to back out of the agreement before it’s too late.

Following these guidelines to create a contract or agreement may not spare you from the possibility of committing a mistake, but it can eliminate the most obvious problems that people encounter in contract writing. Even where parties share a good relationship with one another, written contracts and agreements offer an extra layer of assurance that each party will fulfill their end of the deal as expected. Get started with your legal documents today by downloading a contract template or agreement template for a fast and easy writing experience.