Your Guide to Signing and Managing Contracts

Last updated October 30, 2023

Navigating legal language and clauses in contracts can be overwhelming. However, it’s crucial to learn how contracts work so you can protect your business and personal interests.

This guide walks you through creating, reviewing, amending, terminating, and storing contracts. We’ll also break down some common legal jargon associated with contracts and try to help demystify the contract signing process for you.

Let’s get started.

What is the purpose of a contract?

A contract is a written document or verbal agreement in which two or more parties strike a deal with each other. Generally, most contracts are legally enforceable.

Contracts play a big part in our daily lives. Written contracts are significant because they clarify responsibilities and terms to help avoid legal disputes. For instance, they affect the distribution of inheritances, employee and employer obligations in the workplace, and how family law courts make decisions with regard to the treatment of children.

Take these contracts, for example:

• A properly executed Prenuptial Agreement can protect an individual’s financial assets and clarify responsibilities with their partner before they marry.
• A Last Will and Testament and a Revocable Living Trust are both estate planning documents you can use to list the beneficiaries of your estate.
• An Employment Contract in the UK can cover an employee’s obligations, collective agreements, or how a staff association or trade union represents the employee. Plus, any decisions made during a conversation between an employer and an employee are only binding if verified in writing.

What makes a contract legally binding?

For a contract to be legally binding, it must contain these five key elements: offer and acceptance, consideration, capacity, intention, and legality.

1. Offer and acceptance

In offer and acceptance, one party, called the offeror, offers a good, service, or condition, and another party accepts the offer.

The other party, called the offeree, also has the option to negotiate or decline the first party’s offer. If the offeree accepts the offer, they can confirm it with a signature.

2. Consideration

 Consideration is the benefit or the “value" each party member agrees to receive. This value is often money, but it can also be:

• The promise to do something
• The promise not to do something
• An object
• A service

3. Capacity 

Capacity means that each party member can legally sign the contract. Certain categories of people lack legal capacity, such as:

• Those who lack the ability to make decisions and retain information
• Minors aged eighteen or younger

This ensures everyone understands the contract and can fulfil their legal obligations. The Mental Capacity Act 2005 defines people who lack capacity and how contracts, like a Power of Attorney, can help these people enter into contracts legally.

4. Intention

 Intention means that both parties fully intend to be legally bound by the agreement.

An example of intent in family law would be a couple making childcare plans and listing them in a Separation Agreement. By signing this agreement, the couple promises the courts that their children’s needs will come first.

5. Legality

The subject matter of the contract must be legal in the United Kingdom. So, for example, a contract to purchase illegal drugs would be unenforceable and void.

Are verbal agreements legally binding?

Though verbal contracts, or “hand-shake deals,” may be legal, they can be difficult to prove and enforce in court.

A written contract may be more reliable than a verbal agreement because it:

• Provides an opportunity for reflection since you will have to consider each statement
• Ensures that all parties are on the same page, limiting miscommunication
• Allows a legal professional to review the documents to ensure validity
• Better protects your rights and clearly outlines your responsibilities
• Makes documenting changes or amendments easier

Certain categories of contracts must be in writing in order to be valid. These include:

• The sale or transfer of land and real estate, such as through Real Estate Purchase Agreements and Offers to Purchase Real Estate. These are only valid when physically signed and exchanged between parties.
• Agreements related to marriage, like Prenuptial Agreements, which, although not fully legally binding in the UK, are still often considered by the courts if they have been crafted fairly and without duress.
• Contracts that protect intellectual property that cannot be performed within one year of the agreement (i.e. copyrights).

When are verbal contracts appropriate?

Verbal contracts can be appropriate for deals where the parties know each other well and the risk of loss is small. For example, a university student buys a used textbook from a friend and pays very little, or an adult child agrees to do yard work for their parents.

Can verbal agreements hold up in court?

Verbal contracts can hold up in court if evidence proves that the agreement exists and its terms and conditions have been breached. This can include witness testimonies, documents or correspondences (i.e. letters, emails, and text messages) that refer to the verbal contract or the parties taking actions consistent with the contract’s terms.

What makes a contract unenforceable?

A court may rule a contract to be void or voidable. In either case, such a contract will be unenforceable.

A void contract is one that was never valid in the first place because it:

• Is missing one or more key elements (i.e., offer and acceptance, consideration, capacity, intention, or legality)
• Is incomplete or missing essential pieces of information
• Has vague or confusing terms to the extent that the court cannot conclude what was in the parties’ minds

Voidable contracts are valid agreements that one or both of the parties can choose to either cancel or enforce. The contract may have issues allowing one party to end the agreement legally. A contract can become voidable if:

• There are mistakes in the contract that will affect how parties complete their obligations in the contract
• You enter a contract with someone who lacks capacity
• One or both party members fail to disclose information
• False information or misrepresentation in the contract
• The contract was signed by one party under duress
• Either party commits fraud

For example, a customer signs a Sales Agreement after buying a bicycle that the seller has advertised as being “like new.” When the customer picks it up, they notice that it shows more signs of wear than the seller advertised. The seller has misrepresented the condition of the bicycle, so the customer can void (cancel) the sales contract or proceed with it and keep the bicycle.

A non-binding contract is still unusable, as you cannot enforce it in court. Neither party has to follow its terms.

How do I review a contract?

Reviewing a contract takes more than giving it a cursory glance. Missing key details can lock you into a deal you’d rather not be a part of. You can avoid a headache’s worth of confusion and potential legal disputes by reviewing the contract before you sign it.

Here’s how you review a contract to ensure that your needs are being met and that all party members are on the same page:

• Read the entire contract: This should go without saying, but it’s essential. Contracts can be long, but reading them through will ensure you get all the critical details.
• Ensure descriptions are specific: The contract’s descriptions should be clear and specific to prevent misunderstandings. Reviewing a contract shouldn’t require guesswork, and you should never make assumptions.
• Check deadlines carefully: Make sure you can meet contract deadlines if you have prior commitments before any listed date. Also, don’t miss any acceptance deadlines or expiration dates if they exist.
• Clarify and ask questions: You must understand your role in signing the contract. Ensure that you understand implied terms, and if the contract’s phrasing is confusing, always ask questions. There should be only one way to interpret each clause.
• Know who you’re dealing with: Always confirm the identity of the party that you are signing with. Failing to do so could make you the victim of fraud.

What are boilerplate clauses in a contract?

Clauses are unique sections of a contract that address specific rights, requirements, privileges, deadlines, or duties. Boilerplate clauses are standard, miscellaneous clauses usually found near the end of a contract. They help to clarify and regulate the terms and conditions of the contract.

The term boilerplate clause comes from “boilerplate language,” which goes back to the nineteenth century when steel plates were used to create steam boilers. Later, solicitors and other law practitioners also started to use the term. The term refers to easy-to-customize stock language found in a legal document.

Boilerplate clauses exist to address disputes, the laws governing the contract, and cases in which the contract is declared unenforceable. Here are a few examples of boilerplate clauses in the UK:

• Amendment: Explains how both parties can make changes or amendments to the contract. Usually, the clause states that both parties must note changes in writing. 
• Assignment: States whether or not the parties can transfer their contractual obligations or rights to other parties. This clause might include exceptions, such as who qualifies for an assignment or when it can be done.
• Confidentiality: Identifies confidential information and states what consequences party members will face if they share this information outside of the contract.
• Entire Agreement: No previous representations made by either of the parties form part of the contract. Only what is in the final contract itself may be relied upon.
• Enurement clause:  Specifies that the rights and obligations of parties under the agreement will go to their successors and assigns.
• Force majeure: The contract’s obligations may be put on hold or terminated due to unforeseen circumstances (an “act of God”) that prevent party members from fulfilling them.
• Governing law or jurisdiction: Declares which laws that agreement adheres to and where party members will file a lawsuit if a dispute occurs.
• Indemnity: One party (the indemnifier) promises to compensate or protect the other party (the indemnified) from damages or losses during involvement in the activity the contract describes.
• Notice:  If parties need to give notice to each other, they must do so as outlined in the contract. For example, if there is a set time frame where they must give each other notice or a preferred method of communication when doing so.
• Severability: States that the rest of the contract is still valid even if parts are considered illegal or unenforceable. A severability clause can prevent the entire contract from being thrown out if one part is deemed invalid.
• Time is of the essence: States that one party not meeting the contract’s deadlines can lead to a breach of contract, which allows the other to cancel the contract and claim damages. 
• Title clauses: Explains that headings and captions used in the contract are only there to enhance readability. They are not intended to be used to interpret the meaning of the contract.

How do I sign a contract?

You must sign physical contracts in pen instead of pencil since pencil marks can smudge or wipe away.

Your signature should be in blue or black ink to make it easy to read, photocopy, and save for your records. However, blue ink is harder to forge in documents and easier to see and keep track of in a sea of black text and fine print.

LawDepot’s legal templates allow you to easily customise, print, and add your signature to your legal documents, whether you’re signing a Real Estate Purchase for your dream home or starting an exciting new business partnership. Our legal professionals review our documents to ensure that the format of the contract you sign is correct.

Does my signature have to be in cursive?

Though signatures are traditionally written in cursive, there is no legal requirement for it. However, writing your name in cursive makes it more distinct and harder to forge than printing it. Some people even choose to sign contracts with a symbol rather than their name, but this might make it difficult to link the signature to you and cause problems later on.

How do I initial a contract?

Requirements for initials vary by document. Some may require initials at the bottom of each page, whereas some need initials next to certain sections. In any case, providing your initial on a document is a sign that you acknowledge and agree to the relevant section.

Parties can also use initials to confirm and consent to any changes. Make sure to include the date with your initial to track changes in the document. This is important because one party member could argue that the other party changed the contract without their knowledge.

For example, a nanny might need to adjust her work hours, such as extending them by an hour a day. The parties can list the schedule changes in the agreement and sign and date them with an initial.

Ensure all agreement copies are signed and dated and that each party member has a copy of the updated and initialled contract.

Are initials on a contract legally binding?

Simply initialling a contract is not legally binding in certain jurisdictions. For a contract to be legally binding, all signing parties must provide their signature. However, courts may recognize initials on a contract as a statement of intent.

Initials help verify the signer has read and understands the contract’s terms and conditions.

Can a minor legally sign a contract?

In most cases, minors lack capacity, and any contracts they sign will be voidable by the minor. The exceptions to this law are:

• Contracts signed by minors related to service, apprenticeship, and education.
• Those that enable minors to buy necessities like food, clothing, and medicine.

The Minors’ Contract Act 1987 protects minors and states that all minors who sign a contract must be backed up by an agreement that an adult guarantor signs. The guarantor is then responsible for ensuring the contract’s terms are fulfilled.

Signing a contract online

We usually think of pen and paper when signing a contract, but electronic signatures ( i.e., e-signatures) are becoming popular. After all, this process is convenient, secure, cost-efficient, and environmentally friendly.

How do e-signatures work?

For an e-signature to meet legal requirements, it often needs to include important data such as:

• The signer’s identity (name and signature)
• The signing time and date
• The type of device used and its IP address

Some people or companies create their own e-signature software for this purpose, while others use third-party apps such as:

• Microsoft Word
• Google Docs
• or Adobe PDF

To create an e-signature,  use a digital “drawing tool” or physically write your signature and scan it as an image to insert into your document.

Are text messages legally binding?

Any text message or email signature is binding as long as it meets legal requirements. In fact, a signature might not be necessary—you can sign by selecting “yes” on a checkmark box.

All contracts signed through text must contain a link to the entire contract. The reader can then save and print this document for their files.

What is the difference between executing and signing a contract?

You might think a contract is enforceable once one party signs it, but that’s false. In fact, to execute a contract, all parties must sign it.

For example, imagine a couple is interested in purchasing a home. After negotiating the contract terms with the seller, they come to an agreement. Both parties sign a Real Estate Purchase Agreement to confirm the terms and conditions of the contract. This is the execution date since both parties signed the agreement.

The effective date is when the contract becomes legally binding, and both parties start to enact the contract’s terms. These would include the buyer paying the deposit or the seller giving the customer the house’s keys on the closing date listed in the agreement.

Witnessing a contract

Though there is no legal requirement for most contracts to be witnessed in the United Kingdom, the reasons you might have a witness are:

• To ensure that the contract is correctly signed and that it operates within the law
• To give importance to the act of signing the contract
• To ensure that the signer is not under duress or lacking capacity
• To prevent potential fraud
  

If there is ever a doubt about one of the parties having signed the document, the witness can be called upon to confirm the person did, in fact, sign.

You might need a witness for the following business documents due to the reasons listed above:

• Business Purchase Agreements
• Share Purchase Agreements
• Shareholder Agreements

Who can witness a contract?

Legal adults with capacity can witness a contract in the United Kingdom. Friends or family members can also be witnesses, but it might be better to ask a solicitor or a neutral party with no financial ties to you to be your witness.

A solicitor can help you review the contract and ensure that each section is correct and contains the key elements of a valid contract.  Having a neutral party also helps limit the risk of conflicts of interest occurring during the signing since they do not benefit from the agreement.

Which documents legally require a witness?

Though most contracts in the United Kingdom do not require a witness, estate documents, like Wills, need at least two witness signatures to be recognised by the courts. A Power of Attorney or Lasting Power of Attorney, known as an Enduring Power of Attorney in Northern Ireland, also requires an adult witness.

Keep in mind that laws may change to suit certain circumstances. This is why it’s important to keep updated on your jurisdiction’s contract laws.

How do I amend a contract?

Amending a contract means changing it after it has been signed and dated. Things can change, and a contract must reflect this. This includes: 

• Adding or removing clauses and terms
• Modifying prices and dates
• Clarifying definitions

A Contract Addendum is a form you can use to document your changes. This is helpful when sections must be rewritten to ensure clarity and consistent language with the original contract. If the changes are extensive, it may be best to create a new contract.

Once all parties agree to the terms in the amended contract, they can sign off on the changes with their initials. Don’t forget to add the date the document changes were made. Attach the amended contract to the original and keep both for your records.

How do I terminate a contract?

There may be a time when you need to terminate a contract that you signed.

The easiest way to terminate a contract is through performance and letting it run its course by finishing all its terms and conditions.

However, there may be cases where you must terminate a contract before it ends.

You can also choose to terminate a contract by the law of frustration. This is when an unforeseen event has made the contract’s obligations difficult to perform or radically change one or both parties' purposes for entering the contract. For example, one person chooses to sell their store to another party, and a sudden fire destroys the entire building.

Finally, parties can also choose to terminate a contract by agreement if all parties mutually choose to do so.

What do I need to terminate a contract?

If you need to cancel a contract, there are protocols you should try to follow. To terminate a contract, you need to:

• Check for a termination clause in the contract; if it does, you can follow its instructions. Most termination clauses require the parties to give written notice with the intent of ending the contract early.
• Negotiate with the other party to see if you can end the contract early or work together to find a solution. However, be cautious with this approach since the other party might not be obligated to end the contract early and may not choose to do so.

Are there any consequences to terminating a contract early? 

If one party terminates the contract early and the other party has not breached the contract, they could find themselves:

• Compensating the other party for earnings or services lost due to the contract’s early termination. For example, a venue cancelling a musician’s show last minute may reimburse the musician’s travel costs and lost profit from ticket sales.
• Performing a specific act if they cannot pay monetary damages. For example, if a graphic designer needs to cancel a contract, they may still complete work on part of the project but will not receive full compensation for their work.
• Restitution: The terminating party returns the benefit outlined in the contract to the other party. For instance, a customer is continuously late on making payments on their self-storage unit, so they remove their items from the unit, and the space goes back to the company. Restitutions can also include paying money back.

How to store a contract

Ensure that you store contracts in a safe and accessible place. You can store physical contracts in a safe or firebox. You can also store digital versions of contracts securely online. Remember: digital copies on a computer hard drive must be password protected.

Maintaining your privacy is our priority. LawDepot securely stores your important legal documents online, granting you effortless access whenever you need it. 

Keeping accurate records

Some documents might require regular updates. Last Wills and Testaments, for instance, often need to be changed as people gain and lose beneficiaries. Failing to update a Will could leave the surviving family members and loved ones questioning if it properly reflects the deceased’s wishes.

To keep accurate records, review your paperwork on a schedule that makes sense for you. This may be more frequent for some documents than others. What’s more, it’s crucial to inform any parties involved in your documents whenever there’s a change or an update. 

Finally, be sure the people who need access to your records can easily locate them when needed. This might mean telling loved ones and hired professionals the location of your paperwork, plus any passwords or keys needed to collect it.