Want to know how to draw up a legal agreement or contract? You’ve come to the right place. But what is a legal agreement exactly?
A legal agreement is a binding contract among two parties that entails the exchange of goods or services for compensation. You may think they need to be full of complex legal mumbo jumbo, but most agreements only need two elements to make them legally valid.
The first element requires that all parties concur to the terms stated. Preferably, you express the terms of the agreement in writing with dated signatures and a third-party witness. However, oral contracts are also allowed, although they are quite difficult to enforce.
The second element requires an exchange of items of value. These could include legal tenders, goods, services, or intellectual property. Most of the time, the deal will be for items of perceived equal value to the parties involved. However, this does not always have to be the case.
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Negotiating the Terms of the Agreement
Legal agreements are vital documents, which is why both parties should take their time negotiating them. There will be times when both sides don’t agree to everything right away and have to go back and forth several times with additional revisions, which is fine, as long as both parties agree on the final draft. Often, both parties would have to meet halfway on specific provisions, like payment terms.
Fundamental Considerations for a Legal Agreement
Even though most legal agreements vary significantly in the finer points, some fundamental considerations exist for any contract. A few of these include:
Considering all Possible Uncertainties
Most contract downfalls come from the failure of both parties to consider all possible scenarios in an agreement. Take time to think of the uncertainties that apply to your situation.
An ambiguity of language also contributes to contract failure. To address this, clarity in the writing of provisions and the definition of terms should be a priority when drafting an agreement.
Properly Detailing the Exchange
It is necessary to clearly state the transaction’s exact nature, involving the goods or services sold, along with the accurate payment method and amount. It should also include the payment scheme if it is not a one-time payment.
Considering a Confidentiality Clause
A confidentiality clause, i.e. a non-disclosure agreement, should be considered depending on the contract. If the transaction involves confidential trading information or revealing trade secrets, a confidentiality clause can protect such sensitive information from leakage to third parties. If a breach of contract were to occur, you have the right to pursue legal action.
Including a Termination Clause
The duration of the contract is a necessary provision to include. If the contract is for a one-time service or transaction, it should end upon the completion of that transaction. The contract should also state the termination date for an ongoing service or exchange, if there is one.
Whichever the case, circumstances or events which could trigger the premature termination of the agreement should be specified, including if you can terminate the contract without cause, which usually only requires prior notice.
Checking if the Agreement Follows the Law
An agreement that does not adhere to the laws or regulations within its jurisdiction will be null and void or unenforceable if challenged in court. Thus, it is necessary to see that your agreement follows all laws that may apply to it. It is also worth noting that no legal agreement can involve the sale or transaction of illegal services or goods.
Breach of Contract
A breach of contract occurs when a party doesn’t perform its obligations under the agreement. When a breach of contract occurs, the parties can attempt to compromise on how to handle the breach. For instance, someone could offer a discount or a freebie to make up for the lack of quality of a product or service that they had provided.
Both parties may also opt to go to court, but that can prove very costly in terms of attorney and court fees. Hence, most parties usually try to resolve things informally or use tools such as binding arbitration.