All you need is a clear agreement and mutual promises to exchange things of value.
Lots of contracts are filled with mind-bending legal gibberish, but there's no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll want to put into a written contract are best expressed in simple, everyday English.
Most contracts only need to contain two elements to be legally valid:
- All parties must be in agreement (after an offer has been made by one party and accepted by the other).
- Something of value must be exchanged -- such as cash, services, or goods (or a promise to exchange such an item) -- for something else of value.
Does a contract have to be in writing? In a few situations, contracts must be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last for more than one year. You'll need to check your state's laws to determine exactly which contracts must be in writing. But even if it's not legally required, it's always a good idea to put business agreements in writing, because oral contracts can be difficult or impossible to prove.
Let's take a closer look at the two required contract elements: agreement between the parties, and exchange of things of value.
Agreement Between the Parties
Although it may seem like stating the obvious, an essential element of a valid contract is that all parties must agree on all major issues. In real life, there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.
Offer and Acceptance
The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing.
Let's say, for instance, you're shopping around for a print shop to produce brochures for your business. One printer says (or faxes, or emails) that he'll print 5,000 of your two-color flyers for $300. This constitutes his offer.
If you tell the printer to go ahead with the job, you've accepted his offer. In the eyes of the law, when you tell the printer to go ahead you create a contract, which means you're liable for your side of the bargain (in this case, the payment of $300). But if you tell the printer you're not sure and want to continue shopping around (or don't even respond, for that matter), you haven't accepted the offer, and no agreement has been reached.
But if you tell the printer the offer sounds great except that you want the printer to use three colors instead of two, no contract has been made. This is because you have not accepted all of the important terms of the offer. You have actually changed one term of the offer. (Depending on your wording, you have probably made a counteroffer, which is discussed below.)
When Acceptance Occurs
In day-to-day business, the seemingly simple steps of offer and acceptance can become quite convoluted. For instance, sometimes an offer isn't quickly and unequivocally accepted; the other party may want to think about it for a while, or try to get a better deal. And before the other party accepts your offer, you might change your mind and want to withdraw or amend it. Delaying acceptance of an offer and revoking an offer, as well as making a counteroffer, are common situations that may lead to confusion and conflict. To minimize the potential for a dispute, here are some general rules you should understand and follow.
How Long an Offer Stays Open
Unless an offer includes a stated expiration date, it remains open for a "reasonable" time. What's reasonable, of course, is open to interpretation and will vary depending on the type of business and the particular fact situation.
To leave no room for doubt as to when the other party must make a decision, the best way to make an offer is to include an expiration date.
If you want to accept someone else's offer, the best approach is to do it as soon as possible, while there's no doubt that the offer is still open. Keep in mind that until you accept, the person or company who made the offer -- called the offeror -- may revoke the offer.
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FAQs
All parties must be in agreement (after an offer has been made by one party and accepted by the other). Something of value must be exchanged -- such as cash, services, or goods (or a promise to exchange such an item) -- for something else of value.
What is the answer to a valid contract? ›
A valid contract is a written or expressed agreement between two parties to provide a product or service. A void contract is missing an element. In a voidable contract, there is an option for the parties to enforce the terms even though an element is missing, or some other issue exists with the terms.
How do you make a legally valid contract? ›
Although a document must be signed by each party to be considered legally binding, the mere presence of signatures does not guarantee that an agreement is enforceable in court. To be considered a legally binding contract or document, three critical elements must also be present: Subject, Consideration, and Capacity.
What is contract 101? ›
Contracts 101 is a general discussion of some legal principles of contracting.
How do you answer contract law? ›
Be clear and precise when setting out the relevant law, it will make the application so much more easier! This means that you must demonstrate how the law (as you have outlined and explained it) applies to the facts of the question, i.e. you must show what the rule you have just outlined means for the scenario at hand.
What is required for a valid contract ___________? ›
The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.
What makes a contract valid or invalid? ›
Usually, this involves certain key elements, including clearly defined terms (terms of the contract), mutual agreement among parties of sound mind, and legality, meaning that the agreement cannot relate to illegal activities. Most people will enter into a number of contracts during their lives.
What is a simple example of valid contract? ›
Examples of Valid Contract:
Example 1: Party A agrees to sell Rice crops to Party B. Both parties agree that Party A can cut the crops and take them, once he pays the agreed price. Every kind of movable property is good except for cash and actionable claims.
What are the 5 requirements of a contract? ›
Lesson Summary. A contract is a legal agreement between two or more parties in which they agree to each other's rights and responsibilities. Offer, acceptance, awareness, consideration, and capacity are the five elements of an enforceable contract.
What are the basic elements of a valid contract? ›
There are seven essential elements an agreement must have to be considered a valid contract. The elements of a contract include identification, offer, acceptance, consideration, meeting of the minds, competency and capacity, and contract legality.
It is a legal framework for the agreement between the parties, which is both certain and enforceable. However, to be legally binding, a contract must include four key elements: an offer, acceptance, consideration, and an intention to create legal relations.
What is the basic rule to a contract? ›
REQUIREMENTS FOR A CONTRACT
In order for a contract to be valid, there must be an offer, an acceptance of the offer, an exchange between the parties of something of value, and an agreement to the terms.
Can anyone make a legal contract? ›
Why You Need a Business Contract Lawyer. If you're asking whether you need a lawyer to draft a contract, legally, the answer is no. Anyone can draft a contract on their own and as long as the elements above are included and both parties are legally competent and consent to the agreement, it is generally lawful.
How do you summarize a legal contract? ›
A contract summary will generally cover the most important information and clauses, such as payment terms, termination dates, party names, and charges. This removes the need for a recipient to read and digest an entire contract and helps to make complicated clauses simple.
How do you write a contract for beginners? ›
A comprehensive guide on how to draft a contract
- Check out the parties.
- Come to an agreement on the terms.
- Specify the length of the contract.
- Spell out the consequences.
- Determine how you would resolve any disputes.
- Think about confidentiality.
- Check the contract's legality.
- Open it up to negotiation.
The Civil Code defines a contract as “a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.” For there to be a valid contract, these three elements must be present: consent, object, and cause.
How do you respond to a contract agreement? ›
How to write a contract acceptance letter
- Date of the letter. ...
- Reference to the original offer or contract. ...
- Acknowledgement and acceptance of the offer. ...
- Persons or entities accepting the offer. ...
- Counteroffers and specification of terms. ...
- Further discussions and next steps. ...
- Signature or signoff of the sender. ...
- Being vague.
Generally, to be legally valid, most contracts must contain two elements:
- All parties must agree about an offer made by one party and accepted by the other.
- Something of value must be exchanged for something else of value. This can include goods, cash, services, or a pledge to exchange these items.
Acceptance in contract law is predicated on the existence of an offer. An offer and acceptance are two fundamental elements for a contract to exist. Contract acceptance must meet the conditions of mutual assent, adequate consideration, capacity, and legality in order for a contract to be legally binding.
