How to Write a Contract: All You Need to Know About Contracts

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 lays out an agreement between two parties. If you don’t hold up your end of the agreement, the other party can sue you to recoup their losses.

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. They protect both of you if someone doesn’t meet those expectations.

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 need to 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.

This guide will take you through the process of writing a contract. You’ll learn the basics of contract law, the different types of contracts, the details of how to write a contract, and how to manage contracts. This guide also discusses how to handle contracts online and provides contract templates to help you get started.

But first, this guide will further define what a contract is — and isn’t.

The basic definitions of “contract”

As mentioned in the introduction, the legal definition of 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 take them to court.

For a contract to be legal, it must have the following:

  • Mutual assent: a valid offer and acceptance between the parties, like the sale of a car — one party is selling the car, and the other has agreed to buy it
  • Adequate consideration: the purchase price, which can be money or a trade
  • Capacity: the parties’ ability to enter into an agreement; minors or mentally incapacitated people cannot sign a valid contract
  • Legality: whether or not the contract meets all the jurisdictional requirements (for example, a contract provision that’s legal in New York may not be legal in Texas)

Contract law is the legal area that focuses on drafting and enforcing contracts. It’s common for in-house counsel for a corporation, business lawyers, real estate lawyers, and other transactional attorneys to practice contract law as a specialty.

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 the legality of a contract.

Consideration

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.

Consideration must be legally sufficient and bargained for, although you certainly don’t have to enter a haggling war for the consideration to be valid. When you buy a car at the sticker price, that’s adequate consideration. The parties just need to agree on the purchase price, mutually benefit, and achieve a mutual detriment: The dealership is minus one car, and you’re minus what you paid for the car.

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

Breach of contract is when one party doesn’t perform their obligations under the contract. In the car-buying example, 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 (relating to something physical, like the car not being delivered) or immaterial (the car is delivered late, and unless you can prove monetary damages, you won’t get anything if you sue).

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 a free oil change in exchange for the inconvenience of delivering the car late.

The parties can also go to court. Depending on the amount of monetary damages and on state laws, the parties could use small claims court, which usually doesn’t require legal representation and is much faster than district court. The parties can also agree to use a mediator or binding arbitration, where the arbitrator’s decision is final, to resolve the breach of contract.

Privity of contract

Someone who isn’t a party to the contract cannot sue to enforce the terms of a contract. That’s the essence of privity of contract, which protects the parties from third-party interference. Generally, a contract can’t impose obligations or grant rights to someone who isn’t a party to the contract.

However, contract law has been relaxed as a result of court decisions. Doctrines of implied warranty and strict liability allow third parties to sue if necessary.

An example of implied warranty is when you buy a car from the dealer and expect the car to work as intended. But when you drive it off the lot, it stalls and you get into an accident. In that case, you might be able to recover damages from the manufacturer, even though you don’t have a contract with the manufacturer itself. Strict liability means that the manufacturer is responsible for a defect, even if the manufacturer didn’t mean to send a defective vehicle to the marketplace.

The difference between an agreement and a contract

An agreement is simply an understanding or arrangement reached by two or more parties, but a contract is a specific agreement that’s enforceable by law because of its terms and elements.

You and some friends might make plans to meet for brunch, which is an agreement. But if you sell your friend your car for $10,000 by October 30, and your friend buys the car as-is, that’s a contract. If your friends don’t show up for brunch, you can’t take legal action. If you give your friend the keys to your car, and your friend refuses to pay you, you could take legal action.

To prove that a contract is in place, it’s very important to get the terms of the contract in writing and have both parties sign it. The next section will cover the details of writing a contract, including elements of a contract, clauses, and signatures.

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 seven essential elements that go into a contract, and most of them have to do with the intention behind the contract. These elements are the offer, acceptance, mutual assent (also known as “meeting of the minds”), consideration, capacity, legality — and sometimes, a written document. However, having the contract in writing helps prove that the other six elements exist.

The first section of this guide covered the first six elements of a contract. Writing the contract is another matter.

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.

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 of each party and how the parties will remedy any breach of contract, should one occur. Common contract clauses include where you can sue if there’s a breach of contract, who is responsible if something goes wrong, and how disputes can be resolved (e.g., by requiring arbitration before going to court).

For example, if you live in Florida, but the person you’re entering into a contract with is in Texas, you might add a choice of venue clause to specify where you’d resolve the dispute. This would let you sue in your county in Florida if the other party doesn’t perform their obligations.

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, here are the essentials that a contract should include:

  • Who the parties to the contract are and their correct legal names. For example, if you’re working with a freelance web designer who has incorporated her business, you’ll likely specify her business name, not her personally, as a party to the contract.
  • The rights and obligations of each party 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.
  • What the payment terms and requirements are, such as paying by wire transfer within 30 days of delivery of the website.
  • How and why the contract can be terminated, like if the website designer misses too many deadlines, you can back out without owing them any more money by sending them a letter via certified mail.
  • How disputes will be resolved, such as in small claims court or by binding arbitration.
  • What state law will govern the contract, such as your home state. This can also apply if you have to bring a lawsuit relating to the contract.
  • Who will be liable if a dispute arises. Also known as an indemnity clause, this contract provision basically states which party will have to pay legal fees if there’s a problem, e.g., if you have to sue the web designer and you win the lawsuit, they would have to pay your legal fees and court costs.

These clauses don’t have to be in fancy legalese. In fact, as long as the contract lays out the terms and conditions of your agreement clearly, you can skip all the “heretofore” and “party of the first part” lingo.

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.

Sealing the contract

You may have heard of the phrase “signed, sealed, and delivered” regarding the validity of a contract. However, that’s not entirely accurate; a “sealed and delivered” contract is sufficient in most jurisdictions.

Historically, a “seal” was a wax stamp attached to a document. However, the definition of a seal includes a stamp, scrawl, or someone’s signature. Quite literally, someone could print “seal” as a form of signing their contract, and it would be valid.

Today, more people and companies send contracts electronically, so it makes sense that they’d use electronic signatures. The Uniform Electronic Transactions Act (UETA), ratified in 1999 and valid in 47 states, the District of Columbia, Puerto Rico, and the Virgin Islands, 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 OK to take your time negotiating the contract itself. 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 can agree on common terms and seal the document before beginning the work or engaging in the behavior that the contract is covering, they’ll be protected. You’ll have to compromise on some things, like payment terms, so that you’ll both be happy with the contract.

Once you’ve written the contract, your work isn’t done. You’ll need to manage the contract through its lifecycle, from writing the contract to signing it and even renewing it. The next section of this guide will discuss contract management.

Contract management

Writing a contract is only the first step of entering into a legally binding agreement with another party. It’s very easy to send a contract to someone and have it fall through the cracks. If you start the work, but the contract is never signed or countersigned (signed by the first party but not the second party), that leaves you unprotected. That’s why contract management is so important.

Contract management generally can be divided into three phases:

  1. Pre-award, when you’re developing and agreeing to the offer
  2. Award, when you negotiate the terms of the offer and sign the contract
  3. Post-award, the time period when services are performed

Let’s use a website redesign as an example for the contract management process. The pre-award phase is when you’re reaching out to web designers to get bids for your site and find out what they can do.

During the award phase, you write the contract and work with the web designer to come to an agreement on the terms, such as how much you’ll pay and when they’ll deliver the website design. You’ll also sign the contract during this phase.

In the post-award phase, the work will be done: The designer will create mock-ups, you’ll provide feedback, and the website will be finalized.

During the post-award phase, you might need to create an addendum to the contract. This is a little bit like a mini-contract that adds to your original agreement. It lays out the terms, clauses, sections, and/or definitions in the original contract that will be changed. Any time you want to change the terms of your contract, like to add extra work, you’ll need an addendum to protect both parties.

One example of an addendum is when you decide that you also want your web designer to set up your social media profiles. In that example, you’d create an addendum that adds to the original scope of work and specifies when the social media profiles would be set up, what will go on them, and how much you’ll pay for the work.

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 a contract specialist.

A contract specialist writes and reviews contracts for a living. In a corporation, a contract specialist may be someone who has a bachelor’s degree and works under the supervision of a licensed attorney. However, if you’re hiring someone to handle your contracts, you should probably hire a licensed attorney who specializes in contract law.

You don’t always have to hire a lawyer when you’re signing a contract. However, if the contract terms are difficult to understand, or if you just want to make sure the contract reflects what you’ve discussed with the other party, it’s a good idea to have an attorney look over it before you sign it.

You can also hire an attorney to help you negotiate terms of the contract and write the contract for you. Most of the time, you can write your own contracts and hire an attorney to review them to make sure everything is legal and enforceable in your jurisdiction.

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 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.

In the next section, you’ll learn about the different types of contracts.

Contract types

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.

This section covers the 12 main types of contracts and what they’re used for.

Unilateral contract

A unilateral contract is created when someone makes an offer; it’s accepted when someone performs the action in the offer. Typically, unilateral contracts are used for rewards.

For example, if you lose your bike and offer a $100 reward for the return of your bike, that’s an offer in a unilateral contract because you’re offering something in exchange for performing an action. Should someone find your bike and bring it back to you, you’re obligated to pay them the $100. However, no one is responsible for performing that action, and they only accept the offer if they return your bike to you.

Bilateral contract

When two parties agree to exchange items or services of value, that’s a bilateral contract. This is the most common type of contract and what most people think of when they hear the word “contract.”

It may seem like the difference between a unilateral contract and a bilateral contract is very clear. However, a unilateral contract has to be completely one-sided. In the lost bike example, if someone agrees to find your bike before looking for it, and you agree to pay them for searching for the bike, the unilateral contract becomes a bilateral contract. Under a unilateral contract, you pay someone once they accept the offer and complete the action. Under a bilateral contract, you pay someone for promising to complete the action.

Executory contract

In an executory contract, two parties must perform specific duties by a specific date. These types of contracts are usually between a borrower, a debtor, and another party.

For example, a real estate lease agreement is an executory contract because the tenants agree to pay rent by a certain date, and in exchange, they get a place to live or do business. Equipment leases, franchise agreements, rent-to-own agreements, and timeshare contracts are also examples of executory contracts.

Express contract

An express contract explicitly lays out the terms and conditions of an agreement. This is also what people think of when they hear the word “contract.” The terms can be in writing or agreed to verbally, but they must be stated clearly for the contract to be an express contract.

Implied contract

In an implied contract, the actions of the parties determine whether or not the contract is enforceable. In this case, a “meeting of the minds” is necessary to prove that there was a valid agreement.

For example, you agreed to paint your friend’s living room, and they agreed to pay you $50 and reimburse you for supplies. You didn’t put it in writing, but you painted the room anyway because you trust your friend. This contract would be enforceable because you could theoretically prove a meeting of the minds. It’s still important to put an implied contract in writing, however, and get it signed so that you can enforce it in court.

Voidable contract

A voidable contract is an agreement that is unenforceable for any number of reasons, like not disclosing an important fact or being signed under duress. For example, if you enter into a contract to buy a house, but the seller doesn’t tell you that there’s a pest infestation in the attic, you’ve entered into a voidable contract.

Void contract

A void contract is completely unenforceable from the moment it was agreed to. It was never legally valid and never will be, like if you offer to pay your next-door neighbor to stop jamming on the drums at 1 a.m. This is different from a voidable contract because, at one point, the voidable contract was valid and could still be valid if, for example, the seller hires an exterminator to take care of the rodent problem.

Unenforceable contract

Another term for a void contract is an unenforceable contract. An unenforceable contract cannot be enforced in any court of law, because the terms are ambiguous, the parties entering into the contract can’t legally sign it, or the terms of the contract aren’t legal.

If you convinced an elderly relative with dementia to sign a life insurance policy naming you as the sole beneficiary, that’s an unenforceable contract because your relative doesn’t have the capacity to sign a contract.

Contingency contract

A contingency contract is an if-then agreement that’s usually signed when the parties can’t reach a definite agreement. The terms of the contract aren’t final and are based on certain events occurring. For example, a company might sign a contingency contract with a freelance graphic designer to produce five packaging designs, and if those meet the approval of stakeholders, the graphic designer will then work under a retainer agreement to provide more services to the company.

Oral contract

An oral contract is exactly what it sounds like: an agreement that two parties have settled on but haven’t written down. They’re still legally required to perform their obligations under the contract, but an oral contract is very difficult to enforce should a breach occur.

Ratified contract

A ratified contract is typically used in real estate but can also be used in other circumstances, like if you give an employee the authority to hire someone and then begin paying the new hire. It means that the contract has been agreed to by all parties, but it hasn’t been fully executed. However, by the actions involved, it’s implied that the contract is valid. In this example, you might not have signed an agreement with the new hire to perform work, but by issuing them their paycheck, you’ve ratified the agreement.

In addition to how enforceable they are, contracts are also classified by use. Some of them are pretty straightforward, like land contracts. Others are more obscure, like yellow-dog contracts and quasi contracts. The rest of this section discusses contract types by usage.

Land contract or contract for deed

A land contract or contract for deed is very much like a mortgage, but the seller finances the deal instead of the buyer borrowing from the bank. The buyer and the seller sign the contract, and once the buyer makes all the payments specified in the contract, the deed transfers to them. You might use a land contract if the buyer can’t get traditional financing, for example.

Contract of adhesion

An adhesion contract, or contract of adhesion, is a document typically drafted by a party with stronger bargaining power, like a bank, and signed by a party with less bargaining power, like a home buyer. These types of contracts are also known as standard contracts or boilerplate contracts because the party with less bargaining power usually can’t negotiate or modify the terms of the contract. Insurance contracts, leases, auto purchases, mortgages, and consumer credit cards are usually adhesion contracts.

Unconscionable contract

Contracts that are so one-sided that they’re unfair to one party are called unconscionable contracts. These contracts don’t leave the other party with any good choices, usually because the other party is in a much better bargaining position.

Unconscionable contracts are unenforceable. If a court finds that a contract is unconscionable, they will void it and release the parties from any obligations under the contract. For example, if you buy a car from a dealership, and they include a clause in very small print in a place where you wouldn’t expect it, that contract could be an unconscionable contract.

Yellow-dog contract

If an employer requires an employee to sign a contract promising not to join a union or work for a direct competitor, that’s considered a yellow-dog contract. While these contracts were very widely used until the 1930s, the Norris-LaGuardia Act outlawed yellow-dog contracts that prevented employees from joining labor unions in 1932.

These days, a yellow-dog contract or yellow-dog clause refers to non-compete clauses or non-compete agreements.

Option contract

An option contract is an agreement between a buyer and a seller that lets the party buying the option sell or buy a particular asset at a later date at a price both parties agree to. These types of contracts are usually used in securities, commodities, and real estate.

For example, an investor might sign an options contract to purchase 100 shares of stock for $4.50 each, with a strike price of $10 per share. The investor pays $450 for the stock, and the stock price rises to $20 per share. However, the investor is able to buy more shares for $10 each. The investor can then sell the shares on the market for $20 each.

Quasi contract

A quasi contract is essentially an implied contract, as defined in Chapter 4 of this guide. This type of contract is an obligation required by law to prevent someone from unjustly enriching themselves at the expense of a disadvantaged party. Even if there’s no specific, written contract in place, it might be possible to recover damages.

For example, while hiring someone to strip wallpaper from your dining room and repaint the walls, they come across holes in the wall. Before they can repaint the walls, they need to patch the holes. They charge you for the materials and extra labor, but you refuse to pay. In that case, there was a quasi contract, and the contractor could take you to court to recover their costs to complete the job.

Aleatory contract

An aleatory contract is when something needs to happen before the obligations of the contract are carried out. Most insurance policies are aleatory contracts; you pay a premium in exchange for the insurance company taking care of costs related to a car accident, for example. The insurance company only has an obligation to pay if an event specified in the contract occurs.

Futures contract or forward contract

A futures contract or forward contract is an agreement used in futures or commodities trading. Under a futures contract, someone agrees to buy or sell a commodity or asset for a specified price, at a specified time. The buyer is basically putting themselves on the hook to purchase the asset once the futures contract expires. Typically, hedgers and speculators use futures contracts.

An example of a futures contract is oil futures. The oil producer (seller) agrees to lock in the price at $75 per barrel, and the buyer agrees to purchase the barrels at $75 per barrel in one year, regardless of what the actual market price is for the oil.

Cost-plus contract

In a cost-plus contract, one party agrees to reimburse a second party for expenses plus a specific amount of the profit. These are different than fixed cost contracts, which specify a single price. Cost-plus contracts allow the buyer to assume some risk of the success of the contractor’s products.

There are a few different types of cost-plus contracts. Cost-plus award fee contracts allow the buyer to reward the contractor for good performance. Cost-plus fixed fee contracts cover both direct and indirect costs, as well as a fixed fee for goods or services. Cost-plus incentive fee contracts provide the contractor with an extra fee if the performance under the contract exceeds expectations, like delivering a project early. Cost plus percent of costs contracts specify that the contractor gets more money if the costs rise.

When you’re writing a contract, it’s important to know which contract types apply to different situations, and which are defunct, like yellow-dog contracts.

One situation we haven’t covered yet is the online world. The next section will cover how contracts have evolved in the digital world and how you can create digital contracts.

Other contract types by usage

In addition to how enforceable they are, contracts are also classified by use. Some of them are pretty straightforward, like land contracts. Others are more obscure, like yellow-dog contracts and quasi contracts. This section discusses contract types by usage.

Land contract or contract for deed

A land contract or contract for deed is very much like a mortgage, but the seller finances the deal instead of the buyer borrowing from the bank. The buyer and the seller sign the contract, and once the buyer makes all the payments specified in the contract, the deed transfers to them. You might use a land contract if the buyer can’t get traditional financing, for example.

Contract of adhesion

An adhesion contract, or contract of adhesion, is a document typically drafted by a party with stronger bargaining power, like a bank, and signed by a party with less bargaining power, like a home buyer. These types of contracts are also known as standard contracts or boilerplate contracts because the party with less bargaining power usually can’t negotiate or modify the terms of the contract. Insurance contracts, leases, auto purchases, mortgages, and consumer credit cards are usually adhesion contracts.

Unconscionable contract

Contracts that are so one-sided that they’re unfair to one party are called unconscionable contracts. These contracts don’t leave the other party with any good choices, usually because the other party is in a much better bargaining position.

Unconscionable contracts are unenforceable. If a court finds that a contract is unconscionable, they will void it and release the parties from any obligations under the contract. For example, if you buy a car from a dealership, and they include a clause in very small print in a place where you wouldn’t expect it, that contract could be an unconscionable contract.

Yellow-dog contract

If an employer requires an employee to sign a contract promising not to join a union or work for a direct competitor, that’s considered a yellow-dog contract. While these contracts were very widely used until the 1930s, the Norris-LaGuardia Act outlawed yellow-dog contracts that prevented employees from joining labor unions in 1932.

These days, a yellow-dog contract or yellow-dog clause refers to non-compete clauses or non-compete agreements.

Option contract

An option contract is an agreement between a buyer and a seller that lets the party buying the option sell or buy a particular asset at a later date at a price both parties agree to. These types of contracts are usually used in securities, commodities, and real estate.

For example, an investor might sign an options contract to purchase 100 shares of stock for $4.50 each, with a strike price of $10 per share. The investor pays $450 for the stock, and the stock price rises to $20 per share. However, the investor is able to buy more shares for $10 each. The investor can then sell the shares on the market for $20 each.

Quasi contract

A quasi contract is essentially an implied contract, as defined in Chapter 4 of this guide. This type of contract is an obligation required by law to prevent someone from unjustly enriching themselves at the expense of a disadvantaged party. Even if there’s no specific, written contract in place, it might be possible to recover damages.

For example, while hiring someone to strip wallpaper from your dining room and repaint the walls, they come across holes in the wall. Before they can repaint the walls, they need to patch the holes. They charge you for the materials and extra labor, but you refuse to pay. In that case, there was a quasi contract, and the contractor could take you to court to recover their costs to complete the job.

Aleatory contract

An aleatory contract is when something needs to happen before the obligations of the contract are carried out. Most insurance policies are aleatory contracts; you pay a premium in exchange for the insurance company taking care of costs related to a car accident, for example. The insurance company only has an obligation to pay if an event specified in the contract occurs.

Futures contract or forward contract

A futures contract or forward contract is an agreement used in futures or commodities trading. Under a futures contract, someone agrees to buy or sell a commodity or asset for a specified price, at a specified time. The buyer is basically putting themselves on the hook to purchase the asset once the futures contract expires. Typically, hedgers and speculators use futures contracts.

An example of a futures contract is oil futures. The oil producer (seller) agrees to lock in the price at $75 per barrel, and the buyer agrees to purchase the barrels at $75 per barrel in one year, regardless of what the actual market price is for the oil.

Cost-plus contract

In a cost-plus contract, one party agrees to reimburse a second party for expenses plus a specific amount of the profit. These are different than fixed cost contracts, which specify a single price. Cost-plus contracts allow the buyer to assume some risk of the success of the contractor’s products.

There are a few different types of cost-plus contracts. Cost-plus award fee contracts allow the buyer to reward the contractor for good performance. Cost-plus fixed fee contracts cover both direct and indirect costs, as well as a fixed fee for goods or services. Cost-plus incentive fee contracts provide the contractor with an extra fee if the performance under the contract exceeds expectations, like delivering a project early. Cost plus percent of costs contracts specify that the contractor gets more money if the costs rise.

When you’re writing a contract, it’s important to know which contract types apply to different situations, and which are defunct, like yellow-dog contracts.

One situation we haven’t covered yet is the online world. The next section will cover how contracts have evolved in the digital world and how you can create digital contracts.

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. 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 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.

To be valid under ESIGN and UETA, electronic contracts must meet four requirements:

  1. Each party must intend to sign the document.
  2. The parties must consent to do business electronically. For businesses transacting with consumers, this means sending UETA Consumer Consent Disclosures, ensuring that the consumer affirmatively agrees to use electronic records for the transaction, and checking to make sure the consumer hasn’t withdrawn their consent.
  3. The system used to capture the electronic signature must keep a record that specifies how the signature was created, or generate a text or graphic statement added to the signed record proving that it was signed with an electronic signature.
  4. The electronic signature record is retained and can be accurately reproduced so that all parties can reference the document as needed.

In the early days of electronically signed contracts, parties would upload their physical signatures as a picture, like a .jpeg file, and paste the file into a Word document as their signature. This practice gave way to signing tools in programs like Adobe Acrobat, which electronically stores a physical signature or creates a certificate attesting that the document is signed by the intended party. Services like DocuSign emerged as a way to create contracts online, then send them to the other party for their electronic signature.

Online contracts are replacing paper contracts in many matters, like contracting for services or purchasing items. However, online contracts still won’t replace paper contracts, as there are some documents that absolutely must be signed in ink-and-paper format because ESIGN specifically excludes them. These documents are

  • Wills, codicils (addendums to wills), and testamentary trusts
  • Family law documents like divorce agreements
  • Court orders, notices, and documents like pleadings and motions
  • Repossession, foreclosure, eviction, or default notices
  • Cancellation notices for utility services and health and life insurance
  • Product recall notices
  • Documents that are required to accompany the transportation of hazardous materials

Some states may allow a few of these documents, like pleadings and motions, to be electronically signed under some circumstances if the parties follow specific procedures.

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.

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.

Contract templates

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 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.

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.

Pro Tip

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.

Conclusion

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 need to 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.

This guide covers the entire process of writing a contract from start to finish so you can create a contract yourself.

Getting started with writing contracts can seem daunting, which is why this guide includes examples of templates for and links to some of the most common types of contracts. You can start writing roommate agreements, contracts for freelance or consulting services, and even construction agreements using the information in this guide.

Signing contracts electronically has become the norm, and this guide explains the different ways you can use e-signatures. JotForm has e-signature widgets that drop right into contract templates, so you can easily create electronic contracts and get them signed quickly, without extra steps like downloading and affixing signatures in a desktop program.

Finally, this guide looks at the future of contracts, which includes blockchain. As online contracts continue to evolve, you’ll likely hear more about how blockchain can streamline the process and provide a way to enforce the agreement without getting the courts involved.

For now, though, being able to create a contract online and have it signed electronically will save you time and help you get to work under the terms of the agreement. This guide provides everything you need to do it by yourself.

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