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Contract Law

The Trouble with Templates: Drafting a Contract

By: Katherine Farmer, Guest Writer

On Behalf of | Jan 2, 2024 | Contracts

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Everyday thousands of individuals across the nation enter into legal binding contractual agreements. These contracts range from simple oral agreements, leases, employment contracts, those made to purchase a home, and more-complex contracts concerning the merger of corporate entities. Contracts have become so commonplace in our society, that their importance is often overlooked. Unfortunately, this can result in alarming consequences for the parties who have assented to their terms.

Recent Trends in Contracts

In an August 2023 study from the Adobe Acrobat Team—in which over one thousand American freelancers, small business owners, and solopreneurs were surveyed—it was reported that over 36% of individuals in Generation Z have admitted to not reading contracts fully. Consequently, every 1 in 5 individuals has agreed to a provision that they were unaware of.

This oversight and lack of attention to detail in drafting has led to devastating results. Notably, the average American must now spend over $1,232 to terminate an unsuitable contract. And for those who are unable to successfully forgo their contractual obligations, roughly 19% have reported being paid late, 14% have had to take on extra work, 12% have lost money, and 7% have lost a client. Solopreneurs were found to be the most likely to encounter these issues due to their widespread use of fully templated contracts. Although the contractual errors resulting in these repercussions are common, they can be avoided with careful planning and drafting.

Requirements for a Legally Binding Contract

Before entering into a contract, the respective parties would be well advised to familiarize themselves with the requirements of one. The New Jersey Model Civil Jury Charges lists four requirements in order for a contract to constitute a legally enforceable agreement. These include: (1) meeting of the minds; (2) offer and acceptance; (3) consideration; and (4) certainty.

Meeting of the Minds: The parties to a contract must have a “meeting of the minds” on its material terms. For this to occur, “both parties must understand what each is agreeing to do.” A meeting of the minds will not occur where the contract is based on the misunderstanding of one or both parties.

Offer and Acceptance: An offer transpires where one party communicates “a willingness to enter into a contract and does so under circumstances [that] justify the other party’s understanding that if the offer is accepted, an agreement would result.” The offer must be “reasonably clear, definite and certain in all its essential terms.” An acceptance occurs where “a party shows intent to agree to an offer . . . before the offer is withdrawn or lapses.” The acceptance “must match the terms of the offer exactly.”

Consideration: A valid contract must include consideration for both parties. Consideration is “something of value [which] must be bargained for.” Consideration may be “a benefit to one party or loss of a benefit to the other party.” The actual, monetary value of consideration is unimportant.

Certainty: A contract satisfies the certainty requirement where “the terms [are] sufficiently clear so that what each party was to do or not to do could be determined with reasonable certainty.” In other words, this means that each party must understand what the contract requires of them and be able to determine when their obligations are satisfied.

These four requirements are extremely individualized and context specific. As a result, if the parties to a contract were to solely rely on the use of a form template, they might overlook important elements of the requirements and eventually encounter a variety of liability issues and legal disputes.

The Bottom Line

There is nothing wrong with freelancers, small business owners, and solopreneurs using form templates. In fact, form templates can be a great tool for parties to quickly outline the basic structure of a contract and identify its essential elements. However, the use of a form template alone is insufficient and likely to lead to significant contractual errors. The parties to a contract should take care in drafting and adopt these form templates to meet their unique needs in order to protect themselves from a host of legal issues down the line.

Katherine Farmer is a third-year law student at Seton Hall University School of Law, where she works as an Associate Editor for the Law Review, Vol. 54. Katherine is also the Social Chair of the Corporate Law Society at Seton Hall Law

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