Elements of a Written Contract

• Contract Elements – Contract Formation by: Fran Przyblewski

• An introduction to contracts
• Verbal contracts
• Implied contracts
• Written contracts

Contract Elements – Contract Formation
by: Fran Przyblewski

An introduction to contracts

The word "contract" makes a lot of people nervous. Salespeople often say "agreement" instead, hoping it sounds friendlier. But legally, there's no difference. An "agreement" and a "contract" are the same thing under the law.

Some of us grew up in places where you left your door unlocked and sealed a deal with a handshake. You got what was promised.

That doesn't work anymore. You usually don't know the other person. Getting a referral is hard. And when things go wrong with a handshake deal, it's nearly impossible to prove what you agreed to.

Contractors face this problem constantly. A client will claim they agreed to more work than the contract says. Or they'll delay payment, say they can't afford it, or refuse to pay at all. Some try to dodge payment by selling their house or making up complaints. This is why you need a clear written contract.

Most business deals need a contract. There are three types: verbal, implied, and written.

Verbal contracts

Verbal contracts are legally binding in most cases. But many states restrict them if the amount is over a certain threshold or if the work spans several years. A verbal agreement for a service ten years from now, or for tens of thousands of dollars, would be hard to enforce in most states.

The real problem with verbal contracts is proving what was actually said. If the agreement is complicated or there are no witnesses, the parties may not even remember what they agreed to. Without a written contract, a judge has to guess based on state laws about fairness. But fairness is subjective—at least one side will feel shortchanged.

Don't accept verbal contracts. If someone asks you to agree to something but won't put it in writing, walk away. That's usually a red flag for a scam.

Implied contracts

Every product or service automatically comes with an implied contract, sometimes called an implied warranty. These aren't written—state law creates them automatically. The legal term is "fitness for a particular use" or "merchantability."

When you buy a computer, you expect it to turn on and work. If it doesn't, you have legal rights. The seller has to fix it or give you your money back.

There's one exception: items sold "As Is" come with no warranty at all. "As Is" means the buyer accepts whatever defects exist.

Buy a computer marked "As Is" and it won't work? You probably have no legal remedy.

Written contracts

Always get a written contract. It confirms that all promises made are actually in the agreement. A written contract spells out what the other party will do, what it costs, and what you're responsible for.

Written contracts come in many forms, but they all share key elements:

Name, address, phone number, and license/registration numbers: Get a street address, not a P.O. box. You can't serve legal papers to a mailbox. If someone won't give you a physical address, find someone else.

Start and completion dates: Write down both. A slow start or indefinite timeline can be frustrating and expensive. Most contracts include language about delays caused by weather, natural disasters, or material shortages—things beyond the contractor's control.

Contractor guarantee: Most contractors guarantee their work. The contract should say what's covered and when the guarantee ends.

Detailed description of materials and products: Include brands, models, and colors. Be specific enough that someone else could order the exact same thing.

"Kenmore dishwasher" isn't specific enough. Which model? "Replace the transmission" is too vague. Is it new, rebuilt, or salvage? Original equipment or aftermarket?

Application methods: If relevant, describe how materials will be applied. A painting contract should say whether the paint will be sprayed or brushed.

Product warranties: State who handles warranty service and repairs. Attach copies of the manufacturer's warranty to the contract.

A warranty on a $15 can of paint doesn't help much if you have to pay $250 in labor to have someone apply it. Check whether warranty coverage includes labor.

Payment information: List the price, how the final cost will be calculated, the payment schedule, and any upfront deposit.

Change orders: The contract should require that any changes be documented in writing with costs clearly listed.

Permits and licenses: If the job needs permits, the contract should confirm they've been obtained. Attach copies.

Insurance: Attach copies of the contractor's insurance.

How disagreements will be resolved: Specify whether you'll use mediation, arbitration, or court.

Both you and the contractor should date and sign the contract. If you make changes, both of you should initial them.