A contract is only as valuable as your ability to enforce it. A beautifully written agreement that falls apart under legal scrutiny protects you about as well as a handshake. This is something a lot of business owners learn the hard way. They find out after a dispute arises and their contract turns out to have gaps or structural problems that make enforcement difficult.
The goal of a good business contract isn’t to create a document that looks professional. It’s to create one that holds up when things go wrong. If you can do that, you’ll be fine.
Make Sure the Basic Elements Are Present
Every enforceable contract needs certain foundational elements. Missing any of them gives the other side way too much leverage against you. As you craft your contracts, be sure the following exist.
- Offer and acceptance. One party proposes specific terms and the other party agrees to them. This sounds obvious, but contracts that are vague about what’s being offered create disputes about whether a binding agreement was ever formed.
- Consideration. Both parties must exchange something of value. This could be money for services, products for payment, access for fees, etc. A contract where only one side gives something isn’t a contract. At that point, it’s just a gift (and gifts aren’t enforceable).
- Mutual assent. Both parties must understand and agree to the same terms. If the language in the contract means one thing to you and something different to the other party, mutual assent is questionable. Clear, unambiguous language prevents this problem.
- Legal capacity. Both parties must have the legal authority to enter the agreement. An individual must be of legal age and sound mind. Likewise, a business representative must have the authority to bind the organization. A contract signed by someone who doesn’t have signing authority for their company can be challenged on this basis.
- Legal purpose. The contract must be for a lawful purpose. An agreement to do something illegal is unenforceable regardless of how well it’s drafted.
These elements might seem basic, but that’s kind of the point. Contracts fail on these basics more often than you’d expect. Don’t let it happen to you.
Define the Terms With Precision
Ambiguity is the enemy of enforceability. Every key term in the contract should be defined clearly enough that a third party reading the document would understand exactly what it means without needing to ask either party for clarification.
Scope of work or deliverables should be described in specific, measurable terms. “Marketing services” is vague. “Creation and management of three social media accounts, including 12 original posts per month per account with accompanying graphics, plus monthly performance reporting” is specific. When a dispute arises over whether the work was completed as agreed, the specific language is what the court looks at.
Payment terms should spell out the amount, the schedule, the method, and the consequences of late payment. “Payment due upon completion” invites a dispute about when completion occurred. “Payment of $5,000 due within 15 business days of written approval of the final deliverable, via wire transfer to the account specified in Exhibit A” leaves far less room for disagreement.
Timelines and milestones should be tied to specific dates or clearly defined triggering events. Specific dates or formulas for calculating deadlines (e.g. “within 30 business days of receiving the approved specifications”) create enforceable obligations.
Have a Contract Dispute Lawyer Review It Before You Sign
This step costs money upfront and saves money on the back end in ways that are difficult to overstate. A contract dispute lawyer reviews agreements specifically looking for where this document will fail if the relationship breaks down.
A good attorney will identify ambiguities that you probably didn’t notice and show you where language needs to be clarified or tightened in order to avoid possible issues down the road. And while this does come at a cost, the cost of a contract review is a fraction of the cost of litigating a dispute later on. An hour or two of attorney time during the drafting phase can save tens of thousands of dollars and months of disruption.
Don’t Rely on Templates Without Customization
Online contract templates are a reasonable starting point for simple agreements. However, they’re not a substitute for a contract that’s tailored to your specific business, transaction, or laws in your area.
Templates are generic by design. They cover common provisions but miss the nuances of your particular situation. The best option is to hire an attorney to craft a contract specifically for your situation. But if you feel like you absolutely must use a template, only use it as a framework to build from. Customize every section to reflect the actual terms of your agreement, add provisions that the template doesn’t include, and remove provisions that don’t apply. Then have an attorney review the finished product before anyone signs.
Adding it All Up
The time to think carefully about your contract is before you sign it. After signatures are on the page, you’re pretty much at the mercy of whatever was or was not written into the terms. Investing the effort upfront to make sure the agreement is clear, complete, and enforceable protects you when things don’t go as planned.
