Even in a world where people attempt almost any skilled task with the help of Google, YouTube, or Legal Zoom, people continue to ask: is this contract legal?
They aren’t asking (usually) whether the subject matter of the contract is permitted by law.
They really want to know: will what I’ve written be enforceable.
What makes it a contract legal
There are no magic words or phrases that make a contract enforceable by a court.
Enforceability is not acquired by adding “whereas” or “notwithstanding“.
A contract need only establish that one party made a promise to the other for consideration. Consideration is legalese for money. Or something else of value.
If I promise to join you for dinner next Friday, we have not created an enforceable contract, because there was no valuable consideration exchanged. My promise was gratuitious. You didn’t offer me anything but your good company over a meal.
If , on the other hand, I promise to speak at the event you’re planning, for which you’ll pay my fee, then we have an enforceable contract. I will appear and speak, and you will pay.
If either of us fails to do what we’ve promised, a court will attempt to give the injured party the benefit of the bargain.
So here are four tips on drafting a contract that does the job.
1. Write out the entire deal
The biggest failing of DIY contracts is incompleteness. They don’t describe fully the performance that is promised. They miss one of the essential terms:
- who
- what
- where
- when
If you hope that a judge will enforce a contract, it has to be written such that an absolute stranger to the deal, the judge, can read the contract and know what was agreed.
Too many self-drafted contracts don’t contain enough for a stranger to understand the deal.
Now, contracts with missing terms or ambiguities can be enforced. The contract is still “legal”. It’s just that there is a great risk that the missing terms as the judge fills them in don’t match the intent of the parties.
Enforcement of a fragmentary contract is far more expensive than had the contract been complete.
Enforcement of the unwritten terms becomes victim to what each party remembers but didn’t write down.
2. Flush out & write down assumptions
Often, the contracting parties each come to the table with a collection of assumptions about the arrangement. And each party assumes that the other party shares their assumptions.
Only, until you articulate your assumptions, you can’t test whether you are both, really, on the same track.
The unwritten assumptions form part of the deal. A good contract lays the assumption out on paper. If they aren’t shared when you sit down to write the contract, discussion or negotiation ensues.
The exercise of writing it out becomes as important as the writing itself.
3. Explore the “what ifs”
Well crafted contracts provide for the rights of the parties if things don’t go just as hoped when the contract was formed.
What if
- one party gets sick and performance is delayed
- the materials aren’t available on schedule
- the product doesn’t perform as anticipated
My rule of thumb is that the more money that is involved, or the more critical the contract is to your business, the more what ifs the contract should address.
If the consideration is $1000, it’s not worth extended negotiating or drafting to deal with remote possibilities. If it’s a $100,000, it’s worth more to lay out the details.
4. Provide for attorney’s fees
If you expect to enforce the contract in court if it’s breached, then your contract should provide that the injured party can collect its attorneys fees from the other in addition to any other damages.
Why?
Because the American Rule about attorneys fees says that each party pays their own attorney, win or lose. That is, unless the contract, or a statute, says differently.
Without a provision that grants the prevailing party the attorneys fees necessary to enforce the contract, it may simply be too expensive to go to court. Or, the cost of representation may consume the damage award.
Write on
With these principles in mind, you can draft a contract that is certain and enforceable. Strive for clarity and completeness.
And if this seem too daunting, take your draft to an attorney and pay only for review and repair of your document.
Because, at the end of the day, a contract only works if you can enforce it.
More
How you sign your name to your corporation’s contract
Benefits of incorporating not what you think
Does your business partnership have a prenup?
Image courtesy of Pixabay and Nemo.
