In every engagement that we can get involved with, especially when there is professionalism involved, we are usually bound to have contracts. The contract defines the terms and conditions…
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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.
“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.”
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.
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.
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 scope 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.