Myth #12 – The best contracts are full of complicated legalese that only lawyers have any hope of understanding.
Whether you are purchasing an iPhone, applying for a loan from the bank, starting a new job or buying or renting a home, there is always a moment of panic when you are handed the contract setting out the terms of the agreement which, often contains small print and obscure Latin terms.
Is all that complicated legalese necessary to create a binding and enforceable contract?
This is probably the biggest misconception about written contracts. For most contracts, legalese is not essential or even helpful.
A lawyer can help you determine what needs to be in your written contract to make it a legally binding and enforceable contract but a good written contract should not be full of legal jargon that nobody other than lawyers can understand.
The goal of a good contract is that it is clear and simple while communicating the terms and intent that the parties have agreed to.
This minimizes disputes and reduces the risk of litigation in the future. Contract litigation usually tends to be about poor drafting or incomplete negotiation. Most disputes could have usually been avoided had the contract been properly drafted to begin with.
A contract does not have to be in writing but enforcing an oral contract can be difficult. Generally speaking, a legally binding contract requires three elements:
(1) All parties must be in agreement — there must be an offer made by one party and accepted by the other;
(2) There must be consideration — that is, something of value must be exchanged for something else; and
(3) There must be an intention between the parties to enter into a legally binding contract.
There is no magic to the format you use to put a contract in writing.
You could set out the terms in a document with the word Contract at the top, signed and dated by the parties, or you could include the terms in a letter and ask the other party to countersign to agree to its terms.
What is important is that the contract terms are properly considered and drafted well to reduce the likelihood of a dispute arising in the future. You can’t underestimate the need for good drafting — an ambiguity or an omission may lead to a costly legal dispute that could have been easily avoided with a clear and concise contract.
Helpful tips on how to draft a simple contract:
1. Identify the parties to the contract and include the full names and contact information for the parties along with any legal descriptions (if applicable).
2. Set out the purpose of the contract before providing the details.
3. Include a section of definitions of terms that are used more than once and use those defined terms throughout the contract to reduce ambiguities.
4. Explain the terms in more detail in the succeeding paragraphs. Include precise terms such as a description of any property involved, dates of any payments to be made and interest charges for late payments.
5. Timelines should be clearly written out for the protection of all parties within the contract. In particular set out the start date and termination date of the contract along with any renewal terms if applicable and any deadlines that are to be met.
6. Set out what a breach of contract may entail and the consequences of any such breach such as damages or automatic termination of the contract.
7. Consider including a confidentiality clause if you do not want the terms of your contract to be disclosed to third parties.
8. Include provisions about how the contract may be terminated and what consequences may result from termination.
9. Specify which laws will govern the contract and how any dispute will be resolved, for example by the Courts or in arbitration.
10. Create signature lines for all parties to sign and date the contract. Consider appropriate witnesses.
11. Affix the mandated revenue stamps so that the contract can be produced as evidence in the future.
A well-written contract should eliminate ambiguities, minimize legalese, use plain English, avoid repetition and be consistent in form and substance.
If you stick to these guidelines, the risk of misunderstandings can be greatly reduced. Your lawyer can not only help you ensure that the contract is properly drafted and legally enforceable, but they can help you identify potential disputes and address them in the contract in order to prevent future disputes.
Katie Tornari is a director in the Litigation & Advice group at Marshall Diel & Myers Limited. She may be contacted at Katie.Tornari@law.bm or via phone at 295-7105.