What is a Contract and How to Draft a Good One

DISCLAIMER: Altiorem Legal Services (hereinafter, “Altiorem”) cannot and does not provide legal advice. Altiorem is not a law firm; Altiorem’s staff are not attorneys, cannot act as attorneys, and do not act as attorneys; and any information provided by Altiorem in this article or otherwise is not a substitute for legal advice from an attorney. The information contained in this article should not be construed as legal advice, as it is not intended to be legal advice; the information in this article is provided for educational purposes only. Again, none of the information provided in this article should be construed as legal advice, and nobody should rely on or use the information contained in this article in their legal matters.

WHAT IS A CONTRACT?

A contract is an agreement between two or more parties creating mutual rights and duties enforceable by law.¹See Wex Definitions Team, Contract, https://www.law.cornell.edu/wex/contract (last updated July 2022). Contracts are essentially promises between parties that the law will enforce.

With a few exceptions noted below, an enforceable contract can be written, oral, or a mixture of both.²See Glacier Land Co., LLC v. Claudia Klawe & Associates, LLC, 2006 UT App 516, 154 P.3d 852. Courts regularly enforce oral contracts that were never reduced to writing or signed by either party.

Oral Contracts

In the case of oral contracts, the Courts will typically look for indications that the parties to the agreement demonstrated an intention to be bound by the terms of the oral contract. Expressions of intent can include a handshake, an email, a text message, or even the course of conduct between the parties—for example, if one party paid the other party the agreed-upon amount or either party began fulfilling the terms of the contract without having put it on paper yet.

Written Contracts

According to Utah Code §§ 25-5-4 and 70A-2-201, certain agreements are void unless written and signed—these statutes requiring certain contracts listed to be in writing to be enforceable are referred to by lawyers and the Court as the “statute of frauds.” ³Utah Code §§ 25-5-4 and 70A-2-201.

According to Utah Code § 25-5-4, agreements that must be in writing to be enforceable include the following:⁴See Utah Code § 25-5-4.

Additionally, under the terms of the Uniform Commercial Code (UCC) that was codified into Utah’s statute as Utah Code § 70A-2-201, other types of agreements for the sale of goods are required to be in writing; this is known as the UCC’s “statute of frauds.” ⁵See Utah Code § 70A-2-201.

A contract for the sale of goods for $500.00 or more is not enforceable unless there is some writing that indicates a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by their authorized agent or broker.⁶See id.

Required Elements of a Contract

A few required elements are included in a contract to make it legally enforceable: mutual assent expressed by a valid offer and acceptance, adequate consideration, capacity, and legality.⁷Team, supra.

Mutual Assent

For a contract to be binding and enforceable, both parties to the contract must express their “mutual assent” or the “intent to be bound.”⁸Jaramillo v. Farmers Ins. Group, 669 P.2d 1231 (Utah 1983).

 In practical terms, this means that there needs to be some evidence that the parties to the contract were aware of the contract and agreed to be bound by its terms. This evidence of mutual assent usually comes as an “offer” from one party and an “acceptance” by the other party.

Think of asking a contractor to provide you with a bid for some work at your home. Typically, the contractor will provide you with a bid for services, which is considered an “offer.” After reviewing the bid, you will accept it by signing it, letting the contractor know that you accept and authorize them to proceed, or providing a down payment for the offered work.

To create a contract, what the parties have promised to do for each other has to be spelled well enough that they can tell what it is they have each promised to do for the other. If the terms are too indefinite or ambiguous, there is no enforceable contract.⁹See Golden Key Realty, Inc. v. Mantas, 699 P.2d 730 (Utah 1985).

For a written contract, acceptance is typically manifested by the parties’ signatures on the written contract document. For oral contracts, the manifestation of mutual assent and acceptance can be a handshake, performance of the contract terms by one or both parties or assent communicated via an email or text message.

Adequate Consideration

“Consideration” is a legal term for the “exchange of value” between the contracting parties.¹⁰See Restatement (Second) of Contracts § 71 (1979). In other words, for the contract to be enforceable, each party must give up something of value. The easiest example is a service contract, in which one party promises to provide a service, and the receiving party promises to pay for the service. These promises to provide and exchange value (i.e., money for services) form the consideration for the services contract.

Capacity

“Capacity” refers to the legal ability to enter into a contract.¹¹See John Call Engineering v. Manti City Corp., 743 P.2d 1205 (Utah 1987). Children under the age of 18 do not have the legal capacity to enter into a contract.¹²See Utah Code § 15-2-1.

Only authorized individuals have the legal capacity to enter into contracts on behalf of a legal entity like a limited liability company or corporation.

Individuals who are not able to manage their legal affairs due to a medical condition, mental deficiency, disability, or injury may not have the capacity to enter into an enforceable contract.

Legality

“Legality” refers to the subject matter of the contract. One cannot enter a contract with an illegal purpose and expect that contract to be legally enforceable. As an extreme example, one could enter into a contract to have someone physically harmed; however, since it is illegal to have someone physically harmed, the subject matter of the contract is illegal and, therefore, unenforceable.

WHAT MAKES A GOOD CONTRACT?

One can follow a few tips to make a bad contract good.

Use clear, simple, businesslike language

The contract drafter should use clear, simple, businesslike language to avoid overcomplicating a contract. Contracts can already be complicated and do not need the overuse of long and confusing wording. If the contract drafter must use technical terms, they should define them. This way, nothing can be misconstrued, and the contract would be clear.

Don’t use overly long sentences

Not using overly long sentences goes hand in hand with keeping the contract from getting confusing. Simple sentences that are clear and to the point are important. Again, this will avoid more confusion in the long run. If the contract drafter has long sentences in their contract, they run the risk of the reader having trouble following along.

Implementing clearly structured lists that clearly lay out the contract terms

Clearly structured lists keep the contract concise. The contract drafter wants the lists in their contracts to give a full picture of the agreement, not muddle the facts.

Clarity and Simplicity

A contract needs to state what the contract is for, what the agreement entails, and for how long the agreement is valid.

The most important key to a good contract is simplicity. By keeping a contract simple, the contract drafter will avoid confusion later down the road. Whether selling a house on one’s own, creating a contract for an employee, or creating a contract for one’s customers, a clear, concise contract is necessary.

Altiorem can provide clear, concise contracts that are neither confusing nor plagued with “legalese.” Altiorem will strive to understand what the contract needs to contain and will keep the client informed at all times of the progress being made.