How to Make a Contract Agreement
The art of the deal is deceptively complex. In addition to knowing the ins and outs of negotiation, you need at least a rudimentary understanding of contract law to avoid disputes that could lead to litigation -- or, in the event that you are hauled into court, misinterpretation of your true intent or even rescission of the contract. Knowing how to make a contract agreement will help protect your interests now and in the future.
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Instructions
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Verbally agree on the terms of the contract. This agreement should cover all major terms, such as price, timing and a clear understanding of the property, product or service involved. Each party's obligations should be clear even before you do any writing.
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Write down the terms of the contract as you understand them and present this draft to the other side for review. Ask the other side to correct any errors or misunderstandings and present you with a revised draft.
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Review the other side's corrected draft. Revise anything you don't like or that seems unclear, and return this draft to the other side. Continue this back-and-forth process until both sides agree on every word.
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Organize the contract into sections with clear headings, and revise it until it is clear enough for someone completely unfamiliar with the transaction -- a judge, for example -- to understand its terms. This not only makes the contract easier to read, it also reduces the possibility of misunderstandings that could lead to a courtroom battle later on.
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Clearly define all terms used so that there is no confusion about what they refer to. You might even want to add a separate "Definitions" section. If you are selling a line of products, for example, you could define Products (with a capital "P") as "the products listed in Appendix A attached hereto," and then attach your product catalog to the contract as Appendix A. If you wind up in court, you don't want to be quarreling about what specifically was meant by "Products" -- or "Company" or "Agent" or any other term in the contract.
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Add standard contract boilerplate provisions. See the link in References for examples. Pick out only those provisions you need, and revise the wording to make sure they fit the terms of your particular deal. It is particularly important to include dispute-resolution provisions and, if you and the other party are from different jurisdictions, to specify the governing law.
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Present your contract to an attorney for review. Although this will cost you some money, if the amount at stake is high, it will be worth it. Many aspects of substantive law applicable to your particular deal -- real estate law, for example -- will affect how the contract should be written. Creating an initial draft before going to an attorney will save your attorney time and will save you billable hours.
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Sign the contract, preferably in the presence of a notary public. If one or both of the parties is a company, make sure that the appropriate authorized representative of the company signs, and make sure to note the representative's position with the company and the fact that she is signing on behalf of the company rather than in her individual capacity.
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Tips & Warnings
When writing your contract, imagine that there is an opposing attorney peering over your shoulder doing his best to twist your words to misrepresent your intentions. Write your contract so clearly that this imaginary attorney has no room to argue.
Make sure that your contract contains obligations for both sides (this is known by a legal term of art called "consideration"). A contract that involves an obligation for only one party, even if put in writing and signed by both parties, is usually unenforceable. The amount of the obligation doesn't matter -- a $1 payment is enough. Just make sure that both parties have some obligation, no matter how small. Clearly state these considerations in the text of the contract.
