What are the elements of a contract?

Various types of contracts exist to benefit all involved parties, no matter what field or industry you’re in. Contracts are intended to serve as enforceable, legally binding documents that; for example, outline the services a service provider is expected to deliver, payment for those services, dates, terms, and conditions. Such terms are often laid out within the document and signed by the parties.

Say, for instance, you’ve hired a contractor to build a new kitchen for you, but they never complete the job. Without a signed contract that identifies both parties’ obligations, you may be limited in your ability to enforce your rights or recover damages in court.

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What Are the Elements of a Contract?

To help ensure you can prevent this from occurring, it’s important to understand the elements of a contract. We’ll go over them and explain how you can use Jotform Sign to help create, share, and sign online agreements.

What are the elements of a contract?

Certain elements are generally required to be met before a contract may be considered legally binding, including these:

• Meeting of the minds: Refers to the parties’ mutual assent to the material terms of an agreement, typically established through offer and acceptance, which reflects a shared understanding of the material obligations. In other words,  what each party is agreeing to do — and not do — regarding the sale, tenancy, etc. or other subject of the agreement. These material terms typically include the following:
  • Price
  • Subject matter
  • Quantity 
  • Performance obligations
  • Timing
• Offer and acceptance: One party makes an offer, and the other clearly accepts those terms.
• Consideration: Each party generally must exchange something of value, for example,  money, services, goods, or a promise to do (or not do) something.

Let’s break down terms typically included in a contract a bit further. Remember the example above of hiring a contractor to remodel your kitchen who then reneged on their part of the project? Let’s go back in time and make the right choices to prevent this outcome. 

Here are a few items that are typically included in an agreement if you’re hiring someone to work in or on your home.

Identification of the parties

First, contracts typically identify the parties involved (including the names of individuals and/or the businesses), where the work will be conducted, what work will be conducted, and when the work will be conducted (not to be confused with the contract signing date).

For our example, this might look something like this: “On January 1, 2023, John Smith (“Homeowner”) and  Company Inc. (“Company”) have entered into agreement regarding the kitchen remodeling work to be completed at 123 Maple St., Anytown, USA.”

Rights and obligations of the parties

Next, contracts typically describe what each party is expected to do under the agreement. Outlining these responsibilities can help reduce misunderstandings and clarify the parties’ respective obligations. Such provisions often include statements like:

• “Company will remodel Homeowner’s kitchen, including replacing and installing the cabinets, countertops, sink, oven/stove, and faucet (collectively, the “Materials”) chosen by Homeowner.”
• “Company will complete the work by [insert date] (the “Completion Date”).”
• “Homeowner will make the home available during weekday hours from 9 a.m. to 5 p.m.”

Expectations of each party

Contracts are generally structured to reduce uncertainty regarding what each party is giving and receiving in the agreement. While this may result in a lengthy contract, greater clarity often helps reduce misunderstandings and define each parties’ responsibilities.

Term

The term refers to when the contract begins and ends. For example: “This Agreement shall begin on the date the second of the two parties hereto signs it and shall end when the work is complete.”

Termination rights

If you don’t include termination rights in your contract, you may find your options for abolishing the agreement early are significantly restricted if issues arise — such as if a check bounces or the contractor purchases materials outside your approved, agreed-upon budget.

To prevent this from happening, consider including the following termination rights in your contract: “Company may terminate this Agreement on 30 days’ written notice if Homeowner’s check for the initial payment is returned by the bank for insufficient funds or if Homeowner fails to obtain and pay for Materials. Homeowners may terminate this Agreement at any time before Company begins work, but not thereafter unless Company commits a material breach of this Agreement.”

Liabilities

Continuing with our homeowner/contractor illustration, this language would more specifically highlight what a company needs to do if it defaults on its obligations (since the homeowner’s obligations are often limited to paying for the labor and materials). 

For this section, consider verbiage like this: “Company shall correct any defects in the labor within 30 days if, in Homeowner’s commercially reasonable opinion, the defects negatively affects the cosmetics, functioning, stability, use, or safety of the kitchen.”

Dispute resolution

No matter how well you draft a contract or how healthy your relationship is with the other party, conflict is sometimes unavoidable. People go back on their word, markets shift, workers quit, and inflation affects prices so dramatically that what the contractor originally promised (labor, materials, and overall costs) is no longer sustainable.

There are various methods for dispute resolution, ranging from negotiation to mediation or binding arbitration. The best choice depends on the parties’ specific needs. For example, a mediation and arbitration clause may include language like: “In the event of a dispute between the parties that cannot be resolved within 30 days, the parties shall mediate the dispute using an American Arbitration Association (AAA) arbitrator. Each party shall pay their own expenses. If the mediation does not resolve the matter, the parties shall submit the dispute to AAA for binding arbitration.”

Signature block

Finally, after all terms, conditions, clauses, and additional amendments have been included and agreed upon by the involved parties, the last element is typically a signature block for the parties to sign.

You can use an e-signature platform like Jotform Sign to build, sign, and share e-contracts in just a few clicks. This powerful platform comes fully equipped with a library of 600-plus customizable, reusable e-sign templates, a drag-and-drop e-sign builder, a wide variety of form field types, easy and convenient sharing options, and access to secure cloud storage providers.

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With Jotform Sign, you can also easily add and delete signers (just in case you need to make any changes before the contract is signed), build automated approval workflows, manage data, and help keep the parties on the same page — all from one centralized, code-free solution.

While these elements of a contract are by no means exhaustive, they are some of the most common sections typically included in a legally binding agreement. By understanding what to include when you’re drafting a contract — and the right software to use to collect e-signatures — your contract creation and management could be more streamlined than ever before.