What must a written contract include?

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What is a Written Contract?

A written contract is a printed document that details what parties can or cannot do. These agreements are legally binding and differ from oral contracts since they are on paper and contain a signature from all parties of the agreement. Written contracts are a commonly-used document to protect the terms of any agreement.

Are Written Contracts Legally Binding?

The purpose of creating a written contract for an agreement is to make the agreement legally binding. When a written contract is executed, it includes specific details about the agreement, sometimes including information about what steps can or will be taken when an event described in the contract is executed.

In order for a written contract to be legally binding, it must contain four key elements:

  1. Mutual Assent. All parties must agree to the terms of the contract and must display their signature on the contract to certify their agreement.
  2. Consideration. The agreed-upon action or business dealing, typically something of value which a party is not already entitled to, must be reasonable and fair for all parties.
  3. Capacity. All parties of the written contract must be of sound mind and able to make the agreements set forth within the agreement
  4. Legality. The action set forth in a contract must be legal according to state and federal law

Here are a few examples of clauses you may find in a legally binding contract:

  • Arbitration Clause : An arbitration clause entails that in the event of a contract dispute, the parties to the contract will come to a resolution together, without the help of any other representative or lawyer. This includes in the courtroom.
  • Choice of Law Clause : A choice of law clause entails that the terms of a contract are legal as per the laws in a certain state, even if the state is not where the contract is signed or where the parties of the contract reside.
  • Confidentiality Clause : When an agreement includes confidential information or trade secrets, a confidentiality clause can bind both parties to secrecy. A violation of this clause would constitute a breach of contract.
  • Indemnification Clause : An indemnification clause holds a person or company “harmless” in the event of a dispute, loss, damage, or burden. This clause operates to transfer liability between parties to a written contract.
  • Severability Clause : A severability clause establishes that in the event that any part of a written contract is found to be illegal or unconstitutional, that the rest of the unrelated parts of the contract will remain enforceable.
  • Dispute Resolution Clause : A dispute resolution clause defines the ways that parties of a contract should go able solving different types of disputes. This clause is helpful to save money and time by creating a set up pre-authorized terms to avoid the need of a lawsuit.
  • Termination Clause : A termination clause details the conditions that constitute termination of a contract, including the provisions regarding payment and liability of parties.

Check out this article to learn more about different aspects of a contract and how they make the document legally binding.

Purpose of Written Contracts

The purpose of a written contract is to define the terms and conditions of a business agreement. These documents focus on legality and enforceability while defining the duties and responsibilities of each party of the contract. Written contracts also contain information that solidifies the expectations of each party of the written contract while being concise and clear.

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Why You Need Written Contracts

Aside from being helpful in defining the terms of a project or endeavor, written contracts provide important protections to all parties involved. While oral contracts are enforceable in court, it can be difficult to legitimize a breach of contract without written proof.

Here are a few helpful aspects of written contracts that benefit contract parties:

Liability

Written contracts specify who is liable when a certain event occurs. For example, if a contractor is hired to install a new window, a written contract might specify that they are liable for any damages caused during the installation. However, the window manufacturer might be held liable for any workmanship defects on their product.

Warranties

Product or workmanship warranties are usually expressed in written contracts. This typically includes a pre-determined amount of time that an exchange, replacement, or repair is partially or completely covered under warranty.

Rights and Responsibilities

Each party of a written contract has expressed and implied rights and responsibilities when an agreement is made. Written contracts detail these rights and responsibilities in writing to ensure that all parties understand their roles.

Costs and Wages

The amount of money spent on a product or service is determined in a written contract. This usually details how much money will be spent on labor, materials, and payroll.

Expectations

When two or more parties enter into an agreement, there are expectations from each of them. For instance, a homeowner might expect a contractor to possess the knowledge, certifications and permits needed to complete the job. A contractor might expect the same homeowner to pay for work done in a timely manner and report any issues regarding workman ship or materials within a certain timeframe. These expectations are explicitly explained in a written contract.

Here is an article about different aspects of a written contract and how they are helpful.

Examples of Written Contracts

Written contracts are widely used in many industries and include different details depending on the agreement being made. Here is an overview of a few written contracts and what they might entail:

Sales Contract

A sales contract is an agreement where a sale is being made. These contracts outline the product sold, the price paid, and in some cases, the amount of time payment is made.

Service Contract

A service contract is an agreement that extends services to a client and governs the terms of the project.

Employment Contract

An employment contract details the rights, rules, and responsibilities that an employee has while working for their employer.

Commercial Lease Agreement

A commercial lease agreement is an agreement between the owner of a property and a lessor of a commercial property.

Learn more about types of written contracts by reading this article .

What’s Typically Included in a Written Contract

To be successful, a written contract should include several pieces of vital information. Without them, parties risk their contract being unenforceable. Regardless of the type of service or product being obtained through a written contract, many of the same things should be included in the written contract.

Here is an overview of necessary parts of any written contract:

  • Duties and responsibilities
  • An overview of what is being exchanged
  • Warranty information
  • Indemnification
  • Severability
  • Confidentiality
  • Dispute resolution
  • Grounds for termination
  • Compensation
  • Benefits
  • Definitions clause

Check out this article for more details about what is typically included in a written contract and for details on a contract template.

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