Learn More About Contracts and Legal Forms
Contracts are one of the fundamental building blocks of law and private commerce. Contract law allows private parties to rely on another to do as they’ve agreed because each party knows that they have legal recourse if the other party doesn’t. Some specific types of contracts, such as real estate sales or franchise agreements, can be quite complex, and have their own unique legal requirements. However, all valid contracts, regardless of their substance, must include the following elements:
Offer
Someone must make an offer to someone else with enough detail that it can be accepted and fulfilled. Generally, this means that certain material terms must be present in the offer. Material terms typically include price and the subject of the contract such as goods or services rendered. Depending on the subject of the contract, quantity or timeframe for delivery may also be considered material terms.
Acceptance
The second element required to create contracts is acceptance. The one to whom the offer is made must accept the offer as it is. Making a counter-offer or wanting to negotiate terms isn’t acceptance. Acceptance only occurs when there is a meeting of the minds between both parties on the specific terms of the contract. This includes all terms, not just the material ones.
Consideration
The final element required for a valid contract is consideration. Consideration is the value each party offers that induces the other to agree to the contract. The most simple and common example of consideration is the exchange of money for goods or services. However, consideration doesn’t have to be money. The key to finding consideration in the contract is that both parties are giving and receiving something of value.
Other Important Issues to Creating Contracts
While all valid contracts require these three elements, there are additional, important issues that impact whether a contract is validly formed.
- Capacity to Enter into a Contract
Not everyone has the legal capacity to enter into a contract. For example, in most cases, minors can’t legally enter into a contract. No car salesman can hold a teenager, or his or her parents liable for car payments because their teenager signed a sales contract.
In some cases, certain adults are considered incompetent to enter into a contract. This could be due to mental disability or incapacity. Related to the issue of capacity is duress. No one can be held to a contract they’ve agreed to because someone has kidnapped their children or threatens them in some way.
The key here is that there’s been no real meeting of the minds because one party was unable to act freely.
- Violations of public policy
No state allows contracts that violate public policy. This is why people can’t sell their organs or use the courts to collect on a gambling debt.
- Oral contracts
Oral contracts are contracts if they include the aforementioned three required elements. However, many states have legislated that certain types of contracts must be written down in order to be valid. In other cases, such as real estate, common law requires a written contract.
Where an oral contract is valid, the challenge in enforcing it is that there isn’t any clear statement of what the parties agreed. As a result, using the courts to enforce an oral contract may require the suing party to modify their expectations of what they can get.
- Performance and Delivery
When one enters into a legal contract, one is now legally obligated to fulfill its terms. This is the performance and delivery on the contract. If a party has agreed to pay an amount once goods are delivered or services are performed, that party must to do so. If not, this is when the other party can look to the courts to enforce the contract.