If you have ever asked your lawyer to prepare a contract, you probably had occasion to think about the basic elements that comprise a formal agreement. Knowing the essential elements of a contract can save you time and money when it comes around to drafting, since you can convey all of the necessary information to your attorney in advance, doing a good bit of the leg work yourself.
All contracts have certain common components, including the identity of the parties, a thing or service or benefit to be exchanged (known as consideration), and a subject matter (i.e. contractual purpose or objective). Contracts can be written or oral. The law requires certain types of contracts to be in writing, including those involving the sale of real estate, agreements for the sale of goods valued at $500 or more, and undertakings to answer for the debt of another, commonly known as guaranty or suretyship arrangements. Most other contracts can be oral, although prudence dictates reducing the essential terms of any agreement to writing.
Here is a checklist of the basic elements of a typical contract to help you work with your lawyer in efficiently drafting your next agreement:
- Parties. The parties should be identified by full name and residence address. In the case of corporations, the correct corporate name should be spelled out along with the corporation’s usual business address. Contracts with partnerships should specify the full names of the partnership and the partners. Fictitious names should be verified with the Department of State if used by one of the parties.
- Consideration. The benefits and obligations to be exchanged by the parties must be specified. For example, if you are preparing an agreement to render services for a fee, the amount of the fee should be specified and a precise description of the services to be rendered to the other party should be supplied. If you are selling a car, you would specify the make, model and serial number of the car and the price to be paid for it. A contract to purchase real estate would specify the street address, the improvements erected on the land, the parcel number (and possibly a legal description) of the real estate and would indicate the amount to be paid by the purchaser and any financing terms.
- Deadline for Performance. If the agreement requires performance by a specific date, it should so state; if the date for performance is absolutely critical, the contract should specify that “time is of the essence.” Failure to perform by the agreed date renders the non-performing party in breach.
- Quantity in Goods Contracts. In the case of contracts for the sale of goods, it is imperative that the written document specify the quantity of goods being purchased or sold. The Uniform Commercial Code requires that a quantity term be supplied in written contracts for the sale of goods.
- Date and Signature Provisions. Written contracts should have a provision indicating the date on which they were signed and should include signature provisions for the contracting parties. Where the contracting party is an entity such as a corporation, care should be used to make certain that the document is signed by an authorized representative of the entity in a representative capacity, i.e. President, Vice President, Chairman, etc.