Document Drafting Tips: What a proper contract should look like

Document Drafting Tips: What a proper contract should look like

Doing business in today’s economy is underpinned by contractual agreements. Contracts are legally enforceable promises made between two parties for the exchange of an item of value. While verbal agreements can be legally binding, written contracts are required in many states and should be in a place where significant assets are traded.

This article takes you through the basic contractual elements and what must be present for a contract to be legally binding. We then outline the specific items worth considering ensuring practical function and validity.

Basic Elements of a Contract

1.     The Offer

The offer specifies the commitment of one party to deliver goods, services, or funds to another in exchange for a tangible benefit. It must include the precise items and monetary exchange and delineate the exchange of all ancillary rights and ownership associated.

For example, you agree to pay a fixed fee of $1,000 for a commissioned piece of art. Per the contract, you pay $500 upfront and the rest upon delivery. The contract states the specific terms and includes that the artwork and the rights to it become your property once the deal is fulfilled.

An offer must be clear and complete with necessary terms and conditions, the exact assets to be exchanged and the timeline expected. Each offer must be understandable and presented in a form where it can be accepted. Using tools like Loio software for lawyers can help to cut through any ambiguity to ensure a clear and acceptable offer.

2.     Acceptance

The contract becomes binding when both parties accept the terms.

Acceptance can only be made to the specific terms and conditions as laid out by the offer or without amendments. If not, a rejection, renegotiation, or counteroffer can be applied.

Acceptance is made in the form expected by the offer or which is typically by way of signature.

3.     Mutual Assent

Mutual assent or the ‘meeting of the minds’ refers to the process of ironing out the particulars expected. It must be provable but is typically demonstrated through offer and acceptance.

4.     Consideration

Consideration is the guarantee that the contract involves a reciprocal exchange.

From a court’s perspective, the adjudicator will need to see that one asset is exchanged in return for a different asset. The values of the assets are not required to be equal.

The mutual exchange is regarded as ‘consideration’ and where there is no consideration, the trading of one asset for nothing in return is declared a gift.

5.     Capacity to Contract

Capacity to contract refers to the legal right of both parties to form a contract. This element protects persons with disabilities, under the age of 18 and under the influence of intoxication from entering legal contracts.

6.     Intention to Contract

The final element refers to the legal intention of both parties to create a binding contract. This is often where verbal agreements can fall apart. Without the intention to legally contract, the terms of an agreement are not enforceable by law.

7.     Items to Include

Contracts will vary from agreement to agreement, but there are some items to look out for and consider including.

·          Are the correct contracting parties clearly stated?

·          Are roles and responsibilities spelled out and defined?

·          When is the date of delivery?

·          How is payment expected to be exchanged?

·          When will the contract close or fall due for renewal?

·          How will any potential dispute be solved?

·          Are all terms, clauses, and details free from ambiguity?

For many firms dealing with a large number of contracts and clients, a legal document management system can save time, money, and oversights. A savvy software will highlight renewal and lapse dates, so you can be empowered to renegotiate ahead of time.


Contracts might be a resource-heavy process from inception to review and acceptance, but they form the basis of our transactional economy. Getting them right is the difference between a thriving partnership and an adversarial relationship that doesn’t work for anyone.

When you are forming your next contract, make sure to look out for each of the 6 elements and apply our items list for added assurances!