Advantages and Disadvantages of Written Contract (2023)

If you’re wondering about the advantages of contracts and the benefits of contract law than this blog is for you…

“Studies have shown that people tend to be unrealistically optimistic about the future of their relationships…”

Although there are some advantages to oral contracts, written contracts ten to be much more effective.

Because people believe it is unlikely that misunderstanding will arise, they spend little time addressing them in the process of drafting a carefully worded contract.

Also, entrepreneurs tend to overestimate the strength of their memory.

Many businesspersons find themselves relying on handshakes or oral deals instead of having a written contract that sets forth the parties’ rights and obligations.

However, this seemingly cooperative approach to doing business may increase the likelihood of future disputes.

On this page, learn about the benefits and advantages of a written contract and why you should never agree without a written contract.

If you’d like to get your contract reviewed or drafted, email me at sam@mollaeilaw.com

 

Advantages & Benefits of a Written Contract

Advantages of contracts include:

• Provides proof of what was agreed between you and the other party
• Helps to prevent future misunderstandings or disputes by making the agreement clear from the beginning
• Gives you security and peace of mind by having the terms of the agreement down on paper which the terms do not change
• Reduce the risk of a dispute regarding payments, responsibilities, and timeframes that the service to be performed under the contract
• Sets how disputes will be resolved
• Specifies how either party can end the contract before the work is completed

 

What Should Be Included in a Written Contract?

What should be included in a contract will really depend on the type and complexity of the agreement.

To be legally binding, a contract needs two essential components: 1. an agreement, and 2. consideration.

Within the agreement and consideration lies an assortment of provisions that add to the legality of a contract. These include the offer, terms, performance, conditions, obligations, payment clauses, liability, and default or breach of the contract.

For an agreement to be binding, it must have some form of consideration. This means that all parties involved must receive consideration or something of value. Otherwise, it is considered a gift rather than a contract.

Typically, you want to make sure you cover the following elements in a contract:

• Obligations and Responsibilities – what each party needs to do under the contract
• Performance – how well each party will perform the terms of the contract
• Payment Terms – detailing how payments will be made under the contract
• Liabilities – how liability and responsibilities will be handled once there’s a problem
• Breach of Contract – what will happen if either side fails to fulfill their obligations

Although it’s not legally required, a written contract should also contain several provisions known as “boilerplate” provisions. These include:

• Entire Agreement Clause – states that what is written in the contract is what is exactly agreed to and that nothing outside of this contract is applicable
• Force Majeure Clause – states that should something happen outside the control of either party, such as a fire or earthquake or some rare event that no one is responsible for, then the contract is no longer valid.
• Arbitration or Mediation Clause – this dictates how disputes will be handled, either with a third-party independent arbitration or mediator.

 

Why You Should Have a Written Contract

Putting a contract in writing helps prevent later misunderstandings by forcing the parties to articulate their intentions and desires.

A drafted contract provides a written record of the terms agreed to and is more reliable evidence of the parties’ intentions than the memories of what was said.

The act of signing an agreement reinforces the fact that a contract gives rise to legal rights and duties.

The drafting process identifies misunderstandings or unclear points that might otherwise surface only in the event of a later dispute or lawsuit that could lead to expensive and complicated lawsuits.

Further, the process of negotiating a detailed contract, when paired with trust, can enhance the trust value received by each party.

When negotiations are being drawn out, the parties can avoid ambiguity about what they finally agreed to by including a clause to the effect that “this agreement constitutes the entire agreement of the parties and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties.” We call this a merger clause or integration.

During negotiations, some issues may seem so obvious that no one even thinks to include them in the contract. As time passes and memories fade, however, the parties to the contract may find themselves differing as to what they thought they had originally agreed on.

I ALWAYS recommend having any form of agreement formalized in a written contract to prevent possible disputes in the future.

The strength of a contract lies in carefully drafted written agreements. By using clear, specific language to state their understandings, parties can often avoid quarrels later.

You must balance the time and expense of having a contract lawyer draft an agreement against the costs of litigating the problems that can stem from a poorly drafted contract and the value of the benefits that might not be attained if the contract does not accurately reflect your needs.

 

What To Do Next

If you’re looking to get your contract reviewed or drafted, email me at sam@mollaeilaw.com