A valid contract is an agreement between two or more parties in which one party offers something of value to the people of another party.
Basically, all parties must agree in offering a specified commodity or undertake an obligation, often in exchange for a fee.
In this post, we explore a valid contract’s features to prepare you for the subject matter, whether it be for your businesses, your real estate transactions or perhaps you are even prepping for your real estate exam.
Elements of a Contract
Before you enter into a contract, it is important to understand what’s constituted in such agreements to ensure that the offer is legal and consensual on both parties.
Let’s go over the different elements and factors of a legitimate contract.
As you could guess, not everyone is eligible to take part in a valid contract. They must have the legal ability to do so.
Generally speaking, each person involved in the party must be at least 18 years old and above to be eligible.
It goes unsaid, but the contract members must also have a sound mind and the mental capacity to understand the contents, terms, and conditions of the documents themselves.
For example, one may not claim to have the legal capacity to sign a contract for a reason such as not comprehending the document.
Such a case must have been avoided by clear communication of the performance, promises, and solutions discussed between both parties.
On the other hand, competent parties who have the legal capacity to contract may also include the following:
- A person with authority on behalf of corporations involved in the contract
- A person under the power of an attorney
- Fiduciary given authority to contract
- Emancipated minors
Valid Reasons for Ineligibility to Contract
Common reasons for ineligibility to contract may include the following:
- Declarations of bankruptcy
- Past and current incarcerations
- Recent entrance into amendments which introduce modifications to current contract law
Mutuality and Intention
Mutuality and intention mean that all entities involved have the capacity to create and participate in a legally binding contract.
While this appears to be understood among any type of dispute between involved entities in court, this element is still important to avoid uncertainty surrounding all of the parties’ intentions.
For this instance, a contract must have a promise and acceptance between corporations to enter a mutual and legal relationship with each other.
The offer must bind the involved corporations to the contract, with exceptions of any conditional things, matters, and terms discussed between the state in which they are involved.
Simply put, lawful consideration entails the things which will be exchanged throughout the offer in the contract.
Consideration may take different forms in a contractual agreement. Oftentimes, the offer includes an exchange of money.
However, contracts may also have an agreement in which they may exchange a consideration of services, property, and a thing of value.
A contract’s consideration may also consider a right within a law firm, real estate, or lives of the involved, or any part of the benefits related to a business law discussed in their case.
A consideration may be anything entities find valuable, as long as there are mutual agreements and an acceptance of such terms—which rights, requirements, and consideration kept in an offer must also include “all rights reserved” to elucidate any shares under terms you’ve provided.
Offer and Acceptance
Offer and acceptance go in pairs when we’re talking about a valid contract.
In this case, the offer entails the terms that make up a contract itself; it occurs when one party presents a thing or property of value in exchange for another.
When an offer is presented, the other party may choose to either accept or decline.
Simply put, offer and acceptance are some of the most important elements because they ensure that a contract is properly acknowledged, legally binding, and agreed upon—that is, within any terms, they have discussed within a said contract.
Written and Verbal Contracts
There are two ways of constituting a contract; they’re either in writing or verbally. Both types are legally binding and are eligible under business law.
However, lawful experts suggest it is always recommended to have a written contract for important agreements under state law to avoid dispute in court.
A written contract is recorded on a tangible piece of paper, often with the signatures of the involved people (once complete).
This gives each party the chance to thoroughly review the details of the agreement with all rights reserved before entering.
A verbal contract is one that has been agreed upon by spoken communication. While it is still legally binding, accepting a verbal contract is difficult to prove their existence on site.
For example, a party may not correctly remember the terms of the contract agreed upon, or a party may easily be untruthful about what they recall about the verbal agreement.
The agreement may still be binding, given that the contract must have satisfied all the elements for the contract to be valid.
When entering any contract, it is important to understand that every single agreement must be sound, legal, and valid.
That said, regardless of how many contracts you have entered in the past, you must confirm that the contract contains all necessary elements to make it valid.
If you’re unsure about something, it is still best to consult with a specialist for help, legal advice, and questions!
A contract should not be taken lightly, so make sure to get the required services to ensure that you’re entering a safe agreement.