What You Need to Know Before Signing a Contract

What You Need to Know Before Signing a Contract

Written By
Joy Cunanan
Updated on
June 23, 2022
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Signed contracts are an essential component of financial and business transactions. They are legally enforceable agreements that are tools to help businesses operate smoothly. Business contracts provide the necessary legal protections that you need in any operation. Not only do contracts minimize risk, but they protect both you and your company by helping you understand your rights and obligations under each agreement.

Contracts signify that the parties have reached an agreement and understand the terms contained within it. In other words, they give all parties a fair and equal opportunity to mutually agree on the terms and reconcile the personal expectations of each party.

However, improperly signed documents can render the contract invalid and compromise your legal rights. This is why it is important to understand the ins and outs of contract signing. In this article, we’ll uncover the significance of properly signing a contract, the elements of a contract, and tips to consider in making the contract signing process easier.

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What is a signed contract?

A signed contract legally binds you to the written agreement. Parties involved in the contract sign on the dotted line after negotiating and reaching a mutual understanding of the terms and conditions. A contract’s signature tells legal decision-makers, such as judges and mediators, that you willfully entered into the agreement and were competent to do so. In other words, signed contracts are legal promises that are enforceable by law and in courts. 

Here are a few examples of when contracts are most often used:

  • Business partnership agreements
  • Commercial lease agreements
  • Construction contracts
  • Employment contracts
  • Joint venture agreements
  • Sales contracts
  • Service contracts

Contracts guarantee a standard of practice and provide clear specifications through clauses and conditions. This helps avoid any misunderstandings between parties and leads to better work efficiency. They also act as a written piece of evidence if a promise is broken — also known as a contract breach — and will offer your business protection and remedy when it arises.

Now that we’ve defined what a signed contract is, let’s discuss its elements.

What are the elements of a signed contract?

Contracts are an essential part of running a successful business. Every contract can differ in terms of objectives and terms, but they all share the same elements.

  1. Offer - All contracts must have a valid offer and acceptance to be legally enforceable. The offer usually constitutes the terms of the contract. One of the parties makes a promise to do or refrain from doing some specified action in the future. For instance, a person who is trying to sell a car must make an offer to another person who may potentially buy the car. That buyer must then formally agree to buy it — creating mutual assent. 
  1. Acceptance - The offer is accepted unambiguously. This means that all parties involved in the contract should share the same understanding and acceptance of the contract. Acceptance may be expressed through words, deeds, or performance as called for in the contract. Examples include action, money, property, and intellectual property. 
  1. Consideration - There must be something of value in exchange for a specified action or nonaction. This could be an amount of money, a promise to do something, or an agreement to not do something. This is what helps distinguish a contract from a gift, which is purely voluntary and gratuitous and expects no promise of something in return. 
  1. Valid purposes - The contract cannot be illegal so there is a need to check if the offer, manner of acceptance, and consideration are all valid. Certain contracts may also be unenforceable because they are immoral and against public policy. All contracts are also subject to governing law, so it will be important to specify where your contract might be potentially disputed, which is often the same country as your business or your person.

To learn more about the elements within a contract and how to draft one, please see our guide, “The Basic Principles of Drafting a Contract”, here.

What does signing a contract mean?

Before you sign a contract, whether it is for accepting a job, buying a property, or taking out a loan, there are many things to consider to avoid potential problems in the future. Signing a contract may just involve a simple signature, however, your signature entails saying yes and no to several different obligations and consequences. 

Here is what you are saying when you agree to sign a contract.

  1. You've read the contract.

When you sign a contract, you are legally agreeing and acknowledging that you have read and understood the agreement and are thus bound by its terms. This means you have carefully read through and understood each provision and have sought necessary legal advice in connection with the review and execution of the agreement. 

Here is an example of a “Read and Understood” clause:

“The Executive has read this Agreement carefully and understands each of its terms and conditions. The Executive has sought the independent legal counsel of the Executive’s choice to the extent the Executive deemed such advice necessary in connection with the review and execution of this Agreement.”

  1. You agree to the contract's terms and conditions.

This also means that you acknowledge and agree to all the terms, conditions, and potential consequences included in the contract. These clauses ensure parties understand their rights and obligations. 

Terms and conditions may include intellectual property rights, termination clauses, limitation of liability, and more, with each having its own unique purpose. 

  1. You intend to enter into the contract.

In addition to that, signing a contract shows your intent to have the agreement be legally binding. Even if a party denies the intention for an agreement to be legally binding for whatever reason in the future, the signed contract implies their agreement to it.

  1. You're legally authorized to sign it.

Furthermore, when a contract is signed, it acknowledges that the parties who signed have the authorization to do so. In other words, parties who sign a contract for a company are authorized representatives of their company in contract negotiations. 

These can either be parties who have the actual authority to sign contracts on behalf of their company, or parties who have been given the apparent authority to do so.

  1. You're mentally competent to sign it.

Lastly, signing a contract also acknowledges both parties have the mental capacity to sign. This is one of the most crucial elements of a contract. All parties to a contract have to be mentally capable of entering into a contract, otherwise, the contract can be rendered void and invalid. 

In most cases, what determines if someone has the mental capacity to sign a contract is whether they are well-capacitated to fully understand the meaning and the effects of the words within the contract or just the transaction itself. 

Many people often think that signing a contract is just simply a formality and forget that they are legally enforceable agreements. 

When signing a contract, you are committed to its terms and can be held legally responsible and liable for what it contains. It is important to carefully read through each page and seek out any professional advice if you are unsure of anything.

Why do you need to sign a contract?

Signing a contract may seem daunting at first glance, however, they are crucial in protecting both you and the other parties in regard to the agreement. 

You need a signed contract to authenticate the agreement’s validity and enforceability; your signature demonstrates exactly that. It shows that a deal took place, and all parties understood what they were doing at the time of signing. If you don’t have a signed contract in place, both parties expose the transaction to legal interpretation by lawyers and civil court judges.

When should you not sign a contract?

That being said, there are instances where you should in fact not agree to sign a contract. For example, if a contract has unfilled blanks, whether it is regarding an amount of money, an item, or even a date. When contracts lack elements, especially if they are important, they are illegitimate agreements that are unenforceable by the law. This means you and the other parties have no protection as there was no real agreement in place.

Parties should also never sign a contract if they are under duress, or if they feel threatened to sign it. As previously mentioned, it is also important to never sign anything you do not understand. The general rule holds that one who signs a written document is legally bound to it, so make sure you know what you are signing into before you take action.

Tips for contract signing

  1. Make sure this is a contract you agreed to sign. If the contract has gone through a number of rounds of negotiations or revisions, don't just assume that the copy put in front of you to sign is what you think it is. Before you sign it, be absolutely sure that you fully know and understand the terms of the document.
  1. Know how to get out of a contract. Always carefully review the termination clause for options or ways to get out of a contract. In addition to that, also contest the enforceability of the agreement and determine if the agreement is statutorily compliant.
  1. Send the agreement for advance review. If you are unsure of anything, send all agreements to a professional for legal review and advice before deciding to sign. You should do this preferably with at least a week’s lead time in case there are any provisions that need to be removed or renegotiated to avoid unnecessary risks. 

Make the contract signing process easier with Electronic Signatures

Since the COVID-19 pandemic hit the globe, it has had one of the most devastating effects in every industry including eCommerce, restaurants, and airlines. It has even affected law and contracting practices.

With social distancing measures put in place, companies are now turning to different ways to handle contracts and other business transactions - giving rise to electronic signatures. Here are just a few ways electronic signatures have made the contract signing process much easier.

  • Save on time and salary cost - Electronic signatures digitally remove the need for traveling to physically sign documents. There is also less time waiting for documents and saving salary costs due to reduction in manpowers in waiting time.
  • Faster turnaround - Enable speedy approvals and eradicate back and forth, thus, agreements can be concluded faster and closing time can be decreased.
  • Environmentally more friendly - Going paperless is more sustainable and is a growing trend.
  • Other benefits - Simplified HR process, efficient contract management, and less money on archiving and storing contracts. 

To learn more about the benefits of switching to Electronic Signatures, please see our article, “The Rise of Electronic Signatures in Singapore Amid The COVID-19 Pandemic”, here.

Transform Your Business in Our Digital Era

As the COVID-19 pandemic persists, our society is increasingly becoming digital-first; the demand for companies to make the shift from the physical to the virtual continues. 

As Asia’s leading contract management platform, Lexagle will help your business streamline your contracts’ lifecycles from end to end and optimise your processes as our world gears towards a fully digital future. With Lexagle, you’ll also enjoy more automated features such as contract trackers, better document storage as well as document signing. 

If your business is ready for the next step forward in this digital age, do not hesitate  to contact us for a free demo today. 

What You Need to Know Before Signing a Contract
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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