Writing a watertight contract

Signing a contract is serious for just about any party – they are legally binding agreements and this content must protect your interests, even though things go wrong. You will need to consider just what switches into contracts you sign, whether with suppliers, clients or other third parties. David Gordon, of DG Law, explores how exactly to write a watertight contract to make sure your organization is protected all the time.

The facts?

To make a watertight contract the initial question you need to be confident about is “precisely what is a contract”? In a nutshell, it’s an agreement between several parties which, if valid, is binding on the parties and enforceable by the courts. Quite simply one party can sue another should they don’t do what they said they might do in the agreement. So that it’s pretty vital that you get it from the outset and steer clear of you or your organization getting embroiled in needless litigation.

Steps to make a contract

A contract doesn’t have to be in writing. There are many contracts entered into each day which are not on paper. For instance, you wouldn’t enter a written contract buying something from your own local shop. You require something, it’s directed at you and you shell out the dough. Alternatively, you select something off the shelf, and go on it to the till where you shell out the dough. In both instances there’s a contract for sale. There’s an amusing case which debated whether two farmers writing the terms of a contract privately of a cow was a valid contract. The judge, whose patience will need to have been great, decided that as long as it had been legible and clear what the terms were, then yes it had been a contract!

Running a business needless to say it’s much more likely that you’ll have a written contract when compared to a verbal one. Nowadays email and internet enable them to be formed electronically, dispensing with ink and paper. More info are available below concerning the essential contents of a contract, however in a nutshell although it’s better a business contract is on paper, it doesn’t have to be. You can find exceptions to the rule though: look out for contracts which should be in writing, for instance those that affect land and buildings. To be valid they absolutely need to be in writing.

You’ll also have to negotiate with another party before you put the contract into writing to make certain that it really is mutually agreeable.

“Must haves” – contract essentials

There are a few absolute musts which should be in a contract regardless of how it really is created. These include the next:

• Offer and acceptance – in a nutshell someone provides to accomplish something and another party has to consent to offering (on those terms). Simply placing an offer in a window or writing a letter or placing online isn’t enough to bind another party. Another party needs to have a positive step to consent to it. Whether that positive step is giving an answer to the offer or clicking an “acceptance” button. It’s rather a complex area and you can find hundreds of cases considering the nuances of the concept. But when you have a written contract with two parties then you have overcome this hurdle.
• Consideration – sounds scary, but merely means the exchange of “money” or “money’s worth”. In a small business contract the assumption is that someone wouldn’t normally normally take action for nothing. They’re either likely to pay someone else to provide goods and/or services or they will provide goods and/or services in trade. Quite simply a contract could say “we shall deliver x” and “you’ll pay us £y”. That doesn’t mean to say this must be at market value. Some contracts you will notice utilize the term “in consideration of a £1”. This for instance is frequently the case in contracts transferring intellectual property rights. The word is a device to be sure there’s some acknowledgement that there is a reason for just one party to execute its obligations. Without consideration, even limited to £1, the agreement becomes just a “promise” – and vulnerable to not being enforceable.
• Parties – make certain it’s clear on the facial skin of the agreement that are the parties to be bound because of it i.e. who’s doing what things to whom. An excellent tip to keep in mind is that when it’s an organization, include their registration number as this never changes, whereas their name might. If it’s a person include their name and latest address which means you know where you can send court papers come your day (hopefully not) you must serve notice in it and/or you sue them. In case a alternative party has obligations inform you whether they are bound by the contract.
• Key rights and obligations – the parties will probably have both rights and obligations beneath the agreement. The right in the hand of 1 could be an obligation in the hands of another. To place this into plain English: the party paying money comes with an “obligation” to cover, the party eligible for receive the money includes a “right” to get it. Another example will be: the party delivering goods/services comes with an “obligation” to provide these, as the other party gets the “right” to get them. In drafting the contract make certain it’s clear what each party’s responsibilities are to another. Most contracts will contain between 3 to 5 key rights and obligations which form the essence of the contract. These key rights and obligations, most of all, need to be clear and understandable.

“Nice to haves” once and for all contracts

• Date – this can help parties determine once the rights and obligations become effective.
• Definitions – this can help parties agree what jargon actually means. Understand that in a worst case scenario a judge, who knows nothing about your industry, will have to know very well what you have decided on.
• Conditions – any kind of critical steps that require to happen prior to the contract makes effect e.g. a granting of a licence, or perhaps a alternative party permission?
• Termination – what goes on if another party will not do what they promise and the affected party really wants to end the partnership?
• Intellectual Property – increasingly this can be a key point to verify who owns what e.g. domains, trademarks and who is able to use what, so when.
• Plain English – often forgotten or overlooked. Don’t use language that you will be not familiar or more comfortable with. Put the rights and obligations in a manner that you understand. Most of all, avoid words that you imagine sound legal e.g. using Latin or herewithbeforenotwithstandings. Remember, two farmers had a written contract on a cow approved; I don’t think much Latin or legalese was found in that instance.

“Don’t haves” – contracts

• Jargon – as above with definitions. You might know very well what you mean, however the people down the road who have to place the contract into effect might not.
• Copy and paste – avoid no matter what the temptation to copy another person’s contract. Age the computer has made this all too easy, nonetheless it’s a for sure solution to disaster. Start your agreement using what will be the important points and build from there.

Beware implied terms

Have behind your brain the question – any kind of statutes (laws) which are automatically implied in to the contract no real matter what you write? For instance, employment contracts imply all of the various Employment Acts. Which is why they’re difficult contracts to create without specialized help. Consumer contracts & most business contracts imply what exactly are referred to as UCTA77 and amendments – or "Unfair Contract Terms Acts." In a nutshell, which means that B2C contracts have to be “reasonable” while B2B can’t waive all liability. Again, that is somewhat more technical if you have concerns consult a specialist.

To conclude, provided you follow the principles above you’ll greatly increase your likelihood of piecing together a contract which can make sure that the individual you have decided to work with knows wherever they stand. And subsequently it is hoped this can avoid costly litigation.