In legalese, a contract is a promise, or set of promises, for a breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. In plain English, a contract sets out an agreement between two parties. If you don’t hold up your end of the agreement, the other party can pursue legal remedies against you.
When you’re in business, you need contracts because they lay out the expectations for both you and the person you’re doing business with, so both parties are clear about their rights and obligations.
For example, you could hire someone to design a new website for your business. The contract would lay out what platform the website would be on, when the design would be delivered, when the website would go live, the price for the website, and any responsibilities you’d have, like providing website copy and images. If the designer doesn’t deliver the website on time, you could withhold payment. Conversely, if you don’t pay within the specified time period, the website designer could charge interest on the balance. Both of you are protected.
Having this agreement in writing also helps prevent conflicts. Both sides know exactly what they need to do: The designer needs to get you a mock-up design for your website in 14 business days, and you need to send the designer a 50-percent deposit before they’ll release the mock-up. Getting all this information in writing before a project begins helps ensure that both parties are on the same page and are working toward a common goal.
Contracts should be specific and detailed to ensure that both parties’ interests are protected in the event of a disagreement. However, the prospect of drafting a contract may seem daunting. The more details you put into a contract, the more complex your contract gets.
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This guide will take you through the contract process, discusses how contracts may be handled online, and also provides contract templates to help you get started.
First, what is a contract?
Some Contract Basics
As mentioned in the introduction, a contract is an agreement between parties that creates mutual obligations enforceable by law. That is, two parties agree to set terms, and if one party doesn’t meet those terms, the other party can pursue legal remedies against the other.
Generally, contract law is governed by a state’s common law, which is defined by the state’s statutes and court opinions. Overall, contract law is similar throughout the United States, but the courts in different states may have different interpretations of certain contract elements. This is why it’s always best to consult a licensed attorney in your jurisdiction if you have any questions about how to write a contract or about the legality of a contract.
To be enforceable, a contract must include adequate consideration. This is a bargained-for promise, which could be money, property, or an action (or inaction, as in, someone pays their next-door neighbor to stop playing the drums from 5 p.m. to 6 p.m. every night).
However, the action or inaction cannot be something illegal or something that the other party is already legally obligated to do. So if you’re offering to pay your next-door neighbor money to stop playing the drums at midnight during the week, there may already be a local ordinance that prohibits late-night jam sessions.
A party might give up certain rights by accepting the offer. For example, if your contractor is painting your house and they accidentally punch a hole in the wall, they may offer to repair the hole and give you a discount of 10 percent on the paint job as long as you don’t sue them. If you accept, that can be legally sufficient.
Breach of contract
A breach of contract occurs when one party doesn’t perform their obligations under the contract. In the example of buying a car, if you pay the dealership what you agreed, but the dealer refuses to hand over the car, the dealer is in breach of contract.
Breaches of contract can be “material” (major) like the car not being delivered, or minor, like the dealer forgetting to put in new car mats before giving you the keys to the car.
When a breach of contract occurs, the parties can try to come to an agreement on how to handle the breach. For example, the dealer could offer an upgraded set of floor mats to make up for forgetting to include them in the first place.
The parties can also go to court but that can be very expensive in terms of attorney fees and court costs. That’s why most parties try to work things out informally, and others use tools like binding arbitration.
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Details of writing a contract
You can validate a contract with a handshake, but if you want to be able to enforce a contract in court should something go wrong, you need to get all the terms of the contract in writing. Otherwise, the other party could claim that they didn’t agree to a particular term, such as delivering the first version of your website in 15 days, and you’d have to try to find a way to prove otherwise.
There are certain essential elements that go into a contract, and most of them have to do with the intention behind the contract. These elements include the offer, acceptance, mutual assent (also known as “meeting of the minds”), consideration, capacity, legality and other provisions.
Early contract law required contracts to be written on paper to be valid, but today’s contracts will be valid in many jurisdictions if they’re electronic, as long as they meet the other legal requirements set forth by the appropriate jurisdiction.
The important thing is to get the contract in writing, because oral agreements are notoriously difficult to enforce in court.
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What is a clause in a contract?
When you’re writing a contract, you detail the provisions of it in clauses. A clause is a specific section of your contract, like how a product will be delivered or how much it costs.
Contract clauses define the obligations and rights of each party. Common contract clauses include where you can sue if there’s a breach of contract, who is responsible if something isn’t done how disputes can be resolved (e.g., by requiring arbitration before going to court).
Tips for writing a contract
Writing a contract can be intimidating. Contracts are serious legal documents, and many people are afraid they’ll leave out something important or misword their contracts, leaving them unprotected. To make sure you’ve got the basics of your contract covered, consult with an attorney, but here are key things to know:
- The contract should state who the parties are, stating their full and actual names. This is especially important in contracts with businesses. For example, if there are multiple companies in the area using the name “First Bank”, the contract should be specific about the full name of the business, to avoid any confusion as to which bank is the party. In the above example, the contract should state something like “This agreement (“Agreement”) is between Sarah Chue and First Bank of Minneapolis, with headquarters at [insert the bank’s address]. That way, there should be no disagreement later on as to which bank agreed to the terms.
- The rights and obligations of each party should be set forth in detail. For example, the web designer must deliver a fully functional website, but if you don’t pay them, they have the right to pull down the website.
- It should also state what the payment terms and requirements are, such as paying by wire transfer within 30 days It of delivery of the website.
- The contract should additionally discuss how, and why the contract can be terminated, what state’s or country’s laws will govern the contract, how long the contract term is, and other terms.
- How disputes will be resolved, such as in small claims court or by binding arbitration.
- What state law will govern the contract, how long the contract term is, and other terms.
These clauses don’t have to be in fancy legalese, but they have to be carefully worded. That’s why most people rely on attorneys to draft their contracts.
Many people who write their own contracts use plain English and keep the clauses short and to the point. To make your contracts more readable, use simple paragraph headings like “Choice of Venue” and short sentences.
Today, many people and companies send contracts electronically, so it makes sense that they’d use electronic signatures. The Uniform Electronic Transactions Act (UETA), ratified in most states, gives electronic signatures the same weight as a signature on paper, as long as the electronic signature was placed with the intent to sign a document. States that haven’t adopted the UETA have their own laws in place to recognize electronic signatures.
Negotiating the contract
As you write your contract, the other party might have different ideas about what the terms of the agreement should be. For example, your web designer’s contract could specify that the jurisdiction of the contract is in Travis County, Texas, where they live, and if the contract has to go to court, you’d have to travel to Texas to resolve the problem. You could try to negotiate the contract provision so that any disputes would have to be resolved in Dade County, Florida, where you live and work.
Because a contract is such an important document, it’s okay to take your time negotiating it. You don’t have to agree to everything all at once; you might go back and forth several times with edits and requests. As long as both parties agree on the final draft they’ll be protected. You’ll probably have to compromise on some things, like payment terms, so that you’ll both be happy with the contract.
Getting a contract signed is only the first step in the process. Knowing where to put the contract so it can be easily found later is equally important as getting it signed. For example, when one of the parties has a question about the contract terms, or it’s time for renewal, being able to quickly find the final, signed version is critical. It is surprisingly common for companies to have trouble locating existing contracts, and there can be confusion as to whether one is looking at the final version. Knowing where the drafts (the versions that the parties exchanged before the final version was signed) can also help when there’s a question as to what the parties intended by a contract provision that isn’t perfectly clear.
This is where contract management comes into play. In the pre-digital age, parties would print out hard copies and file them in a cabinet, but now, while some contracts are signed in hard copy form, most are kept electronically, in “soft” form, and stored on a company server or in the cloud.
Getting help: The contract specialist
At some point, you may feel like you’re in over your head with your contracts. That’s when you might need to seek out an attorney or other contract specialist.
A contract specialist is not an attorney, but they often have a lot of experience writing and reviewing contracts, so they may help with the basic framework, saving you some expense before it’s time to retain an attorney to look over the draft contract.
You can also hire an attorney to help you negotiate terms of the contract and write the contract for you.
Contract management software
If you enter into a lot of contracts, you may want to consider investing in contract management software to help you keep track of them all. A contract management system can store all your contracts, including the standard contract templates you use; use workflows to help you create new contracts; alert you when a deadline is coming up; track delivery schedules; electronically sign contracts; and monitor any possible compliance issues.
There are a lot of different options for contract management software, and the best software for you may not work for another organization. Some, like SAP Ariba, are geared toward large enterprises that deal with millions of dollars in contracts. Others, like Concord and PandaDoc, are aimed at smaller companies that just need something to control versions of contracts and electronically sign documents.
Some contract management software programs, like ConvergePoint Contract Management Software and Corridor Contract Management, integrate with Office 365 so that you can create and edit your contracts in Microsoft Word. What you choose depends on the features you need and the programs you already use.
Contract lifecycle management
Many organizations use contract management software to track the lifecycle of a contract. During the award and post-award phase, there are plenty of opportunities for a contract to fall through the cracks.
Tracking the lifecycle of the contract involves putting all of your contracts in one place, collecting the data (such as the parties and what the projects are) from the contracts, and noting when the deadlines are. It also involves creating new contracts and going through the approval process, which is where contracts can fall off the radar.
Approval involves a workflow in which you send the contract to the legal department or managers who have the authorization to sign a contract. Negotiation, signing, and analysis are also part of the contract lifecycle. Analyzing contracts requires noting risks and obligations under the contracts.
Contract lifecycle management software goes a step beyond contract management software to do all this. The term is often used interchangeably with contract management software since they’re almost the same thing.
Some contract management software packages already include contract lifecycle management, like ContractWorks and Conga Contracts. Others, like NetSuite, are part of enterprise resource planning software. As with contract management software, the best contract lifecycle management software varies according to your needs and budget.
Contract management is a process that starts even before the contract is written and extends throughout the project. At times, you may need an addendum to the contract or to hire a contract specialist to help you manage your already-signed contracts. You can also use contract management software or contract lifecycle management software to keep track of your contracts and their statuses, as well as the types of contracts you have.
There are a lot of different types of contracts, beyond just business service agreements and residential leases. Contracts vary in scope and purpose by what they cover and how they’re signed and delivered. Each type determines what each side is obligated to do. And some contract types are more enforceable than others.
Contracts in the online world
Living in a digital world has conditioned a lot of people to want everything done at the click of a button, and signing contracts is no exception. Some lawyers still prefer to have clients physically sign a paper contract, and contracts that require notarization (when a notary public witnesses the signing of the document and then affixes a seal to it) cannot be signed online. However, electronically signing documents has become the norm for many people and companies.
Electronic signatures have been perfectly legal and just as enforceable as ink-and-paper contracts in many jurisdictions since 2000. Federal legislation, known as the Electronic Signatures in Global and National Commerce Act (ESIGN), and state legislation that adopts the Uniform Electronic Transactions Act (UETA) or puts forth its own e-signature laws ensure that most electronically signed contracts are legal regardless of where the parties are located.
Online forms make it a lot easier to create electronic contracts. Some forms will let you drag and drop terms and conditions from previous documents, or come populated with standard terms and conditions as part of the contract template. This makes it much easier to create and send contracts that are enforceable in a court of law and to get them signed.
Jotform includes a host of e-signature widgets to speed along the signing process. You can use Smooth Signature, E-Signature, DocuSign, or Adobe Sign right within the form builder. The combination of ready-to-customize templates and e-signature widgets allows you to create your contract and add an e-signature portion all within one screen, streamlining the process and getting your legal documents in place faster than drafting documents yourself or using an ink-and-paper contract.
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Smart contracts are the future
Electronic contracts will continue to evolve. The future of electronic contracts is smart contracts — self-executing contracts with the terms of the agreement written directly into lines of code.
Smart contracts use the blockchain network to validate signatures and enforce the terms of an agreement. The code is what controls how the contracts are executed, and blockchain creates a secure, irreversible tracking system for the contract.
While blockchain is often thought of as the foundation for Bitcoin, it can do a lot more than handle financial transactions because it’s a decentralized, distributed public ledger that creates a permanent record.
Smart contracts are ideal for parties who want to transact directly and don’t need a central authority, legal system, or enforcement mechanism. The rules and penalties are clearly defined in the agreement, and obligations are automatically enforced. They’re used to exchange money, property, shares, or anything else of value.
For example, you might use a smart contract to rent an apartment. You would pay in cryptocurrency, like Bitcoin. The receipt would be held in the virtual contract, and the digital key to the apartment would be delivered by a specified date. If the digital key isn’t delivered, the blockchain technology would automatically refund your money.
Ultimately, as technology changes, so will the way we execute contracts. For now, being able to sign documents electronically has been a huge time-saver for many people and companies. The next section will explore different types of contract templates that can help you expedite your contracting process.
If you’re not a lawyer, writing a contract can be intimidating. Choosing the right format and making sure you have the correct wording and necessary clauses can be difficult and confusing. That’s why contract templates written in advance by attorneys are so helpful. Here are a few types that can help you get started creating your own contracts.
Employment contract templates
An employment contract lays out the terms and conditions of someone’s employment with a company, like title, salary, and work hours. Using a template can speed up the onboarding process for new employees.
Photography contract templates
It’s very easy for a photoshoot to succumb to scope creep — the client may want more shots than you originally agreed to or more editing services. A photography contract, whether it’s for senior pictures or family photos, can specify how many poses you’ll shoot, how you deliver the shots, and any extras like editing you may include.
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Wedding photography contract templates
Getting a wedding photography contract in place means that there won’t be any surprises for either side. In addition to curbing scope creep, both parties will know exactly what to expect. For example, you could specify how many shots of just the bride and just the groom you’ll get, where you’ll photograph the wedding from (e.g., the choir loft of the church), and what shots are absolute must-haves, like the bride and groom’s first dance.
Rental contract templates
Whether you’re the one leasing an apartment or you’re the landlord, you’ll want to have a rental contract in place. This type of agreement lays out what the premises are (e.g., house, room, apartment), the contact details for both the landlord and tenant, how much the rent is, and how long the rental contract is for. It can also include who is allowed to stay there and who is responsible for basic maintenance tasks.
Real estate contract templates
A real estate contract can include lease agreements for apartments or houses, long-term rental agreements such as month-to-month apartment leases, or short-term vacation rental agreements. Like rental contracts, real estate contracts specify the terms and conditions of occupying the premises. Using a template can help you quickly get your tenant on the premises.
Construction contract templates
Construction projects are notorious for delays, cost overruns, and misunderstandings. A construction contract can clearly lay out the time line for the project, the materials that will be used, labor costs, and what will happen if an event outside the parties’ control occurs, like a hurricane that delays work for weeks.
Rent-to-own contract templates
When someone wants to rent something with the option of buying it before the lease runs out, getting a rent-to-own contract in place can protect both parties. These agreements are standard lease agreements, but with a clause that allows the leasing party to purchase the item or property. A rent-to-own contract is usually associated with items like furniture or appliances, but it can also be used for real estate.
Loan contract templates
A loan contract is ideal for preventing disputes when you let someone borrow money, whether it’s a business associate or a relative. These agreements lay out how much is being borrowed, what interest rate is being charged (if any), and when the amount will be paid.
Nanny contract templates
When you’re hiring a nanny, you’re entrusting that person with the care of your child, and you’ll want to be very clear about what you expect. Similar to an employment contract, a nanny contract lays out the terms of the nanny’s employment, as well as the duties they’re expected to perform (e.g., picking your child up from school, preparing meals) and behavior that’s not acceptable (e.g., smoking during the workday, non-emergency phone calls).
Sales contract templates
Selling a larger-ticket item, like a mobile home, requires a sales contract, just to protect both parties. For example, you might be selling the mobile home as-is, and you’ll want to specify that in the contract so that the buyer can’t later claim something was broken but was represented as being intact.
Roommate contract templates
Both landlords and roommates use a roommate contract to ensure that a person living on the property is meeting obligations like paying rent and utilities, taking responsibility for property damage, and performing household chores. Getting a roommate contract signed helps protect you if your roommate skips out in the middle of the night or refuses to pay for the garage door they damaged.
Freelance contract template
The web is full of horror stories of freelancers not getting paid after performing work. Using a freelance contract protects freelancers against this by outlining the work to be delivered, how much of a deposit must be paid before work begins, when the final payment is due, and whether or not interest will be charged when a payment is late.
Owner financing contract template
Instead of a traditional mortgage, a home buyer might use an owner financing contract that lets the owner of the home essentially loan money to them so that they can buy the property. The seller extends a line of credit to the buyer, and the buyer pays the seller in installments as they would with a mortgage, but to the seller instead of a bank.
Real estate for sale by owner contract template
It can be difficult to write a real estate purchase agreement, also known as a purchase and sale agreement, without some guidance. A real estate for sale by owner contract template can provide an outline of what you need to include, like the legal description of the property and how the purchase will be financed.
Consulting contract template
When consultants or independent contractors provide services, a consulting contract can specify what services will be provided and how much will be charged. These contracts can also include the maximum number of hours that can be billed before the consultant needs to renegotiate the contract, and other relevant terms and conditions for the engagement.
Time and materials contract template
A time and materials contract is a lot like a construction agreement, but for any project that requires both labor and materials. It lays out what the cost of the labor is and how much the materials will cost, as well as a fixed add-on cost to cover any overhead.
Web design contract template
Both web designers and their clients need a web design contract in place. A web design contract specifies the pricing, the scope of the work (e.g., how many and what types of web pages will be designed, like landing pages and static pages), and the time line for key deliverables like wireframes, payment schedules, and intellectual property rights.
As seen in this guide, there are a lot of different types of contracts. You can find the right contract template by checking out Jotform’s contract template library. Jotform has many different templates to choose from so that you can quickly and easily prepare a contract for any need.
Having a contract in place is the best way to manage expectations and make the terms and conditions of an agreement crystal clear for both parties. To get started, you should be familiar with the basics of contract law, what the elements of a contract are, how to manage contracts, and the various types of contracts that can be used.