3 Required Elements for a Valid Contract

(STL.News) – The words you write in your contracts can literally make or break your business.  Even if you have the best products and services on the market, you must understand the elements that make a contract valid.

Here we will discuss three of the most important elements in every valid contract, regardless of industry, business size or individual business culture.

Keep in mind as you read on: You can find contract templates for various industries at www.docsketch.com/contracts.  This is useful if you’re on a budget or you need guidance to apply the tips below.

The Offer

An offer is a legally binding promise to either refrain from acting or act. In return, the other party involved in the contract promises to do the same.  This covers basic transactions such as a painter agreeing to paint a home for a predesignated sum of money.  Both conditions must be agreed upon in order for the offer in the contract to work.

Sellers must be careful not to create a “power of acceptance” in their advertisements.  For instance, if a seller advertises that buyers can come and get goods at a sale price on a “first come, first serve” basis, that seller cannot then raise the price back to normal arbitrarily.

Acceptance

In order for a contract to be good under the law, it must be accepted by both parties.  However, this acceptance must be made in the manner that is specifically noted by the offer.  If there is no manner specified, then reasonable circumstances dictate what defines acceptance.

Offerees must know of the offer that is being made in order for acceptance to be valid.  The offeree must also show an intention to accept, and the acceptance must be made unconditionally based on the terms that are stated in the contract offer.  In terms of consumer transactions or employment contracts, the manner of acceptance is left open.  However, transference of possession is usually enough for a court to deem that an offer is accepted (i.e. a contractor takes a check ahead of performing a plumbing service for a building owner).

Consideration

Both parties in a contract must have something of value to offer to the other side.  Consideration under the law is the exchange of value, and this value does not need to be currency.  Consideration can be nothing more than a promise to perform some act that is not legally required.

In practice, consideration is supported by a court if the offeree suffers some sort of legal issue in making a return promise upon performing the requested act under a contract.

Although there are other aspects to a contract that may validate or invalidate it, these three elements are always required.  If they seem a bit esoteric, that is by design – contracts are legal instruments that laymen may not always understand.  It is usually best to work with a template with all of these elements already in place if you do not have the money to hire a lawyer to go over every line of a contract.

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