How to Form a Contract

Write your own contracts and save legal bills

In legal parlance, a contract is, according to dictionary.law.com, "an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration." You enter into informal contracts everyday; for example, when a neighborhood teen mows your lawn for $25. You are in agreement to exchange payment for a service---the essence of a contract. While a handshake can seal an informal agreement such as lawn mowing, more complex business arrangements are better served with a more formal, written contract.

Instructions

You Can Write Your Own Contracts

1. 

   Determine if you have the four essential elements of a formal contract. These are: A) Offer and Acceptance. Has someone offered you a service or product for a certain price, and have you accepted? B) Mutuality and Consideration. Are you in agreement to exchange something of value for something else of value? C) Competent Parties. The two or more people entering into the contract must be legally competent. That is, they must be adults (with some exceptions), and they must not be under a temporary or permanent disability of a kind which precludes them from entering into a lawfully binding contract. D) Lawful Intent. The object of your contract must be a legal business act, or it will not be enforceable in a court of law.

2. Consider whether you are already using documents that comprise a contract. If you are selling an item using a purchase order form or have a letter of agreement that already outlines the important terms of the matter at hand, you likely do not need a separate contract. But if you do not already have documents that include all the important details of a business transaction, write down those details in a written contract. There is no legally required form for a written contract. You can write your own by hand, with a word processing program or purchase software or hard-paper legal forms at an office supply store. Putting the terms of a contract in writing help to make sure both parties are clear as to their expectations and responsibilities.

3. 

   Have both parties write down a list of the important issues and conditions for your agreement. These can include the precise products or services to be supplied, the amount of payment and when payment or payment installations are due including any late fees or interest charged. For service contracts, include schedules for when work is to be performed as well as standards or a statement of who will approve to quality of work for each stage of performance. For a product sale contract, include whether substitutions are acceptable and when and where the product is to be delivered. In a contract that includes providing writing or artwork, include a statement of who will own the copyrights in that work. For a project-based contract, include details on when a final report is to be issued. Other details will depend on the exact nature of the contract. For example, in a service contract it might be important to state whether the person performing the services is to be considered an employee or independent contractor.

4. Enter the information into a business contract form purchased from an office supply store, or write out your own contract. Start with: "This contract is between..." and list the parties full legal names, addresses, and other contact information. Then state what the contract is for: "For the purchase of..." or "For the construction of...". List the specific terms of the contract, stating what first one party, then the other, agrees to do, being sure to include dates, quantities and standards for acceptable performance.

5. 

   Conclude your contract by listing alternative means of resolving disputes if they arise. For example, instead of going to court if there is an argument over whether a shed you are having a local handyman build is adequately constructed, you might state in your contract that if there is disagreement, you will ask a local contractor to mediate the dispute. Have all parties sign and date the agreement and make sure all parties get a copy of the contract you have created.

Tips & Warnings

• Some contracts must, by law, be in writing. These include contracts regarding real estate as well as contracts that cannot be completed within one year's time. Contract law varies from state to state. Although you can form your own legally binding contract, if the matter is complex or there is a lot of money, time or liability at stake, consult a locally licensed attorney before entering into a contract.

References

• Small Business Forms and Tips
• Contract Law Information
• Small Business Contract Forms

Resources

• The Online Law Dictionary
• Basic Contract Law, Concise Edition; Fuller and Eisenberg;