You don’t have to be a lawyer to reap the benefits of writing your own contracts. A little common sense goes a long way and a good contract does more that just cover your rear should you end up in court. Written correctly, a contract can demonstrate business professionalism, weed out insincere clients, organize your duties, speed up your pay, help you get insurance, avoid disputes, make mutual obligations clear and keep you out of court.
History of Contracts
Contracts go back as far as verbal communication. There are several examples of contracts written in the Bible. How would you like to enter into contract with God Himself? Several human beings did. Another example of a famous contract is the Constitution of the United States. The Constitution is a contract between the branches of the federal government and the body politic regarding duties, rights and responsibilities.
The right to contract is guaranteed in the Constitution, Section 10, Article 4. “…the right to contract shall not be denied…” The right to contract is assumed under common law. That is why the Con stitution is worded as it is. The right to contract had been established long before the Consti tution came into existence.
Elements of a Good Contract
A contract is a legally binding agreement. Con tracts are either formal(written) or simple(verbal). It may be a bilateral contract, performed by both parties, or unilateral, a promise in exchange for an act or performance of a task or deed. Contracts may be voided, that is, the parties may agree to nullify the contract or it may be voided by a court of law. These are some of the characteristics of a contract.
Every good contract has four essential component parts. They are: offer and acceptance, mutuality and consideration, competent parties, and a legal object.
An offer is communicated verbally or in writing and has definite terms. Mutuality indicates duties or actions are performed by each party. Consideration means that something of value is exchanged. Competent parties speak to the mental and legal capacity of the parties involved in making the contract. A legal object connotes a legal objective and no criminal intent.
Contracts don’t have to be formal: a letter of agreement is a contract too. In fact, a contract can be anything — it can be oral, can be written on a napkin(though not advised), can be a purchase order or a combination of documents exchanged between parties. It has no particular form. Written is better, though, then the terms are less often questioned.
To construct your own contract, specify the issues and conditions that matter. Indepen dent consultants, for example struggle with Internal Revenue Service rules that threaten to reclassify them as employees. In an independent contractors contract state “the contractor is an independent contractor and not an employee.” That will protect the business identity and relieve your client of the fear that they will end up having to pay your health insurance premiums and Social Security taxes.
Include specific services your are to perform and deadlines. Detail a payment schedule that is suitable to both parties. If intellectual property (i.e., software, reports, manuals) is involved, include details about who owns the rights and the extent of those rights. If your work is project-based, include a description of when the job will end. That can be the delivery of the final report, etc.
So, how do you write your own contract? It is easier than it may appear. Several software packages exist to help you with the chore. Look also for printed forms. However, they are not as easily customized to your needs as software packages.
Get a good set of forms, fill them in and spend less on lawyers. Your understanding of the principles of contracts, their uses and limitations are sure ways to cut legal bills or avoid them altogether. It will also prevent murky situations in which inexperienced professionals find themselves and to avoid litigation.
References: Write Your Own Business Contracts: What Your Lawyer Won’t Tell You by Thorpe Barrett, The Legal Guide for Starting and Running a Small Business by Fred Steingold (Nolo Press)