Legal Contracts: Types, Elements, And How Automation Can Help

Rohit
May 17, 2024

Contents

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Creating legal contracts can be daunting, especially for those without a legal background. Whether you are an entrepreneur, freelancer, or small business owner, drafting and reviewing a contract format and creating legal contracts in bulk can be riddled with manual errors. 

You may wonder what clauses are essential, what makes the contract ironclad, and what elements can enforce its validity. The thought of crafting multiple legal contracts regularly can lead to errors that can damage the brand image of a professional or business. 

However, legal contracts are essential for businesses and individuals, and avoiding contract errors can save you a lot of money and headaches. 

What is a Legal Contract?

A legal contract is a legally binding agreement between two or more parties, outlining each party's rights and obligations, specifying what they can and cannot do. It establishes the conditions under which parties agree to conduct a transaction or engage in a specific business relationship.

Common examples of legal contracts include service contracts, sales contracts, employment contracts, loan agreements, independent contractor agreements, partnership contracts, etc..

Types of Legal Contract

For the uninitiated, you must know the types of legal contracts relevant in the business world, to narrow down what clauses you must include in each of them.   Let's examine various types of legal contracts.

Express Contracts

An express contract is a legally binding document in which the parties explicitly state the terms and conditions, either in writing or verbally, and all involved parties agree upon them. It leaves no room for confusion or uncertainty regarding each party's role in the agreement. In case of violations, it helps either party enforce the terms legally.

Example: A franchise agreement between a franchisor and franchisee in which the terms for brand usage, royalties, and operational standards are clearly outlined in a signed written document.

Implied Contracts

Implied contracts are created through actions, behavior, and circumstances rather than through a written or verbal agreement. They arise when parties behave in a way that shows they intend to enter into an arrangement.

Implied contracts are commonly used in service-based industries, such as food and healthcare. For example, a patient visits a doctor's office for a routine check-up. Though there is no explicit agreement, it is implied that the patient will pay for the medical services provided based on past behavior and industry norms.

Unilateral Contracts

A unilateral contract is a legal agreement in which one party promises to act in exchange for a specific act by another party.

This type of legal contract is often used in industries such as insurance, sales promotion, and labor, where the performance of the party making the promise is crucial for acceptance by the other party.

Bilateral Contracts

A bilateral contract is a legally binding agreement in which both parties fulfill agreed-upon terms. This type of legal contract is commonly used in business transactions, trades, sales, rentals, and leases.

Example: A landlord agrees to rent an apartment to a tenant for a monthly payment. The tenant, in return, agrees to pay the specified amount and adhere to the property's rules and regulations.

Executed Contracts

An executed contract is a legally binding contract between two or more parties in which all parties involved agree to fulfill their terms. This contract is considered fulfilled when all parties have completed their obligations and are no longer bound to each other.

It is commonly used in various transactions, such as real estate and sales, to ensure legal compliance and accountability.

Example: A real estate transaction where both the buyer and seller have signed the purchase agreement, the funds have been transferred, and the ownership title has been officially handed over to the buyer.

Void Contracts

A void contract is invalid from its outset, meaning it has no legal effect. This happens when there is a lack of capacity, uncertainty, or misunderstanding, and the terms of the document are treated as if they never existed.

Example: A contract for an illegal activity, such as an agreement between two parties to smuggle contraband, is void from the beginning since its terms violate the law.

Voidable Contracts

Voidable contracts are initially valid and enforceable but can be voided by any or all parties under certain circumstances. A voidable contract remains legally binding until one or more parties exercise their right to void it. Reasons for voiding a contract include coercion, undue influence, fraud, and lack of capacity.

Example: For instance, if a business owner is pressured or coerced into signing a merger agreement by a much larger company threatening financial ruin, that contract may be voidable. The coerced business owner can later choose to void the agreement due to the improper pressure placed on them during the negotiations, making the contract legally unenforceable.

What Makes a Contract Legally Binding?

A legal contract requires an offer and acceptance between two parties, with a value exchange, a.k.a. consideration, like a service, sale, or monetary transaction, among other things. So, a legal and binding contract must have these essential elements.

  • All parties involved must be of legal age or above the age of consent.
  • All parties must exercise free will and act in good faith to agree to the terms of the contract.
  • All parties involved must have the mental capacity to understand and fulfill the agreed-upon terms of a legal contract.
  • Every clause in a contract must comply with the legal requirements of the corresponding jurisdiction and should not include any illegal terms.
  • All parties involved must have sufficient time to review the terms and conditions of a legal agreement and may also make a counteroffer.
  • All of these essential elements must be clearly explained using key terms in a legal contract format.

All these essential elements must be explicitly explained using key terms in a legal contract format.

Key Terms in a Legal Contract

Understanding the key terms in a document template while creating a legal contract online or offline ensures the contract is legally sound and that the terms can be enforced.

Contractual agreement

A contractual agreement outlines the mutual terms and conditions between the parties involved and clearly defines their rights, obligations, and considerations, laying the foundation for a legal contract.

Rights and Obligations

A legal binding contract has two essential components: rights and obligations. Rights outline privileges and entitlements, while obligations define duties and responsibilities. These terms must be defined clearly to remove any ambiguity..

Damages and Remedies

These terms in a  legal contract describe how disputes and breaches can be resolved. Damages refer to compensation awarded in cases of breach, while remedies are legal actions taken to enforce contract obligations.

Payment Terms and Conditions

Payment terms and conditions outline the methods, amounts, and timelines for monetary transactions. By clearly specifying the payment details and penalties for all parties involved, they promote transparency and reduce conflicts.

Confidentiality Clause

A legal contract's confidentiality clause protects sensitive information from unauthorized disclosure. It specifies the types of confidential information that can be used in confidence. By agreeing to this clause,  both parties agree to safeguard proprietary knowledge, trade secrets, and other valuable assets.

Jurisdiction and Choice of Law Clause

Jurisdiction specifies  the district, state, or country and under whose purview of laws will apply when a  dispute arises. 

Notice Periods

Notice periods refer to the amount of time  prior to which a party should inform the other in cases of an event of contract termination, withdrawal of consent, changes in pricing and services, modification of terms, etc.  . 

Breach of Contract

The terms around the breach of contract are enforced when a party fails to fulfill its obligation stipulated in a legal contract. 

For instance, a repudiatory breach of contract occurs when a builder fails to fulfill his obligations, which leads to the property’s owner terminating the contract. Another example is an anticipatory breach, which occurs when a party does not intend to start work, making the other party eligible to terminate the contract.

Consequential and Reliance Damages

When a party breaches a legal contract, the other party may be entitled to compensation for their losses. This compensation can be consequential damages, which refer to indirect losses, or reliance damages, which define direct losses. 

To ensure fairness and clarity, all compensation terms must be clearly outlined in the legal contract and agreed upon by both parties.

Ownership and Intellectual Property Rights

Intellectual property rights determine legal ownership and control over intangible assets, including patents, trademarks, copyrights, and trade secrets. These clauses specify how intellectual property will be utilized and safeguarded in a legal agreement.

Can Anyone Make A Legally Binding Contract? 

Yes, anyone can make a legal binding contract if the conditions of two or more parties are met. Legal contract automation enables users to frame contracts in minutes using an online template builder. 

A contract is successful when both parties freely consent to the agreeable terms and conditions. Involved parties must be aware of the jurisdiction that sets the contract laws. Hence, seeking professional assistance to formulate a legal contract format is always smart. 

Legal Contract Automation: How It Can Crush The Chaos In Contract Creation 

We need not explicitly tell you the pains of manually processing piles and piles of paperwork. 
Automatically creating contracts, besides reducing the time you can spend on client relationships and due diligence, shortens client or employee onboarding timelines, expedites sales cycles, and closes deals with your legal clients faster. Moreover, mistakes such as misspelled client information, incorrect insertion or wording of clauses, and wrong formatting can lead to loss of business and damage reputation.

 Automating creation of legal contracts can significantly reduce the effort to create legal contracts in bulk. For example, legal professionals using Docupilot can simply build a dynamic template entailing all client information and clauses so that business teams can create documents either by filling in information manually or connecting the template to data sources like a CRM and online form containing client information.  

Advantages Of Legal Contract Automation

Did you know?

According to the “LexisNexis: Escaping the in-house legal labyrinth” report, the biggest benefits of legal tech are:
  1. Makes the team more productive (74% of surveyed responses)
  2. Automates repetitive tasks (54% of surveyed responses)
  3. Gives more time to focus on priority issues (53% of surveyed responses)
  4. Simplifies workflows (49% of surveyed responses)

*Percentages will not add to 100% as the responses were part of a multiple-answer question.

  1. Focus more on strategic tasks: Legal document automation will free up your valuable time to work on something more important, enhancing productivity and opening up opportunities to attract more clients. Automating legal contract generation using a predefined template with auto-fill capabilities can reduce document creation time by an hour. You can create a legal agreement in seconds by adding client info, date, service period, etc., and send it to the recipient via an integrated email service.
  2. Enhanced collaboration: Document automation speeds up template creation, legal contract generation, and reviewing by bringing in multiple users on a single platform to create legal contract formats, and edit them as per their need.
  1. Benefits teams reliant on fast contract closures: Automating legal contract creation can remove bottlenecks for your other business functions. For example:
  • Swift contract delivery accelerates the signing process, reducing the time it takes for sales teams to close deals and secure new clients.
  • Quick contract processing speeds up onboarding, allowing HR and operations teams to integrate new employees or partners without prolonged waiting periods.
  • Faster approval and delivery of legal agreements enable project teams to start their work promptly, avoiding delays in project timelines.
  • Reduced delays in contract finalization give finance teams more accurate and timely information, helping them allocate budgets effectively.
  • Quick delivery of contracts simplifies vendor onboarding and management, allowing procurement teams to maintain uninterrupted supply chains.
  • Efficient contract processing ensures that customer service teams have up-to-date agreements, enabling them to provide accurate support and enhance customer satisfaction.
  1. Workflow efficiency: Document automation can create a diverse range of templates for legal contracting in minutes. Such a template can be reviewed, edited, approved, and signed faster, considerably reducing the document lifecycle steps. Moreover, advanced contract creation solutions like Docupilot allow you to add conditional logic into your templates to adapt content based on specific conditions or data inputs. This feature enables content insertion and repetition based on certain criteria, and customizes contracts at a large scale.
  1. Elevated customer experience: Legal contract automation platforms reduce turnaround times and streamline, and streamlines activities such as negotiations and change requests, allowing the end user to receive documents faster, improving their satisfaction and trust in the process. Moreover, SaaS-based solutions allow the end-user to access documents from anywhere, benefiting businesses  and clients with remote teams. 

How To Automate Creating Legal Contracts With Docupilot?

Document automation software offers advanced tools to create contract templates, online editors and integrations to data sources to create templates and automate creating contracts in bulk.

Build Custom Legal Contract Templates

Document automation software like Docupilot offers advanced features to create a library of legal contract templates. What sets Docupilot apart from its peers is its customization parameters like the usage of variables, conditionals, tables, and loops. Here is what these dynamic template elements do.

  • Variables: These fields include client names, dates, gender, addresses, services, etc., pulled from data sources. For example, in an employment contract, variables can automatically fill the employee's name, job title, start date, and department if an HR database contains up-to-date employee information, generating a new contract for each new hire becomes quick and accurate.
  • Conditionals: Conditional statements help you decide whether to include merge fields in a dynamic template based on certain conditions. For example, in a sales agreement, conditionals can include or exclude warranty clauses depending on whether the client chose to purchase an extended warranty. If the customer opts out, the agreement will automatically omit the extended warranty section, simplifying the document and minimizing confusion.
  • Tables: This feature assists in including data sets in the form of rows and columns in a legal contract template. For example, in a licensing agreement, a table can dynamically pull and list the fee schedule for each type of license or usage. If a media company licenses multiple forms of media, a table can be populated from a fee schedule database to list the specific licensing fees for print, digital, and video separately, providing the client with accurate and transparent billing information.
  • Loops: Iterative merge field or smart content blocks for a list of  contract clauses. For example, in a master service agreement (MSA), loops can be used to include multiple service offerings or deliverables relevant to the client. If a software company offers consulting, implementation, and ongoing support, loops can insert these services in the MSA based on the client's selection. This ensures that each service the client opted for is covered comprehensively.

Using these parameters, this legal contract template will include merge fields or smart content blocks.

Connecting Data Sources

Docupilot's document automation platform offers API integration with various data sources to auto-populate smart content blocks or merge fields. This allows for the creation of client intake forms and the generation of legal contracts for specific clients. 

Users can connect Docupilot with Zapier to integrate with any forms service. You can also integrate Docupilot with AirTable (without Zapier) using our native extension published in Airtable’s marketplace.

Legal Contract Delivery

Docupilot streamlines legal contract delivery by automating workflows, ensuring seamless and efficient processes. With its customizable delivery options, you can effortlessly generate and email PDFs based on Google Forms responses, or create personalized sales documents when a lead is added in Salesforce. Moreover, documents can be securely backed up in Google Drive or Dropbox for audit purposes. For e-signatures, the platform integrates with DocuSign, and other eSignature solutions, simplifying compliance and legal validation. These features enable legal professionals to focus on strategic tasks while Docupilot ensures accurate, timely, and secure document generation and delivery.

Docupilot: Your Go-To Document Automation Software For Legal Contract Generation

Docupilot is a one-stop solution for automating legal contract generation. If you're a lawyer or work in a legal firm, you know how time-consuming and tedious it can be to generate legal contracts manually. 

But with Docupilot, you can learn how document automation works easily and can automate the entire process in just a matter of minutes, saving you hours of manual processing time. 

Say goodbye to the hassle of generating legal contracts manually. 

Sign up today for a 30-day free trial!

Did you know?

According to a Thompson Reuters, respondents who use document automation for lease agreements (22%) report that they have time to Leverage workflows to develop new business models with clients and Win new clients with better business development.