At the foundation of any professional relationship is a contract. If you are coming to an agreement or closing a deal, the contract will outline all parties’ rights, duties, and obligations.
While all contracts are unique regarding terms, length, and other factors, there are six essential elements to keep in mind. Knowing what these are can help you create legally binding contracts for any purpose.
We also recommend contacting our legal team at Law Offices of Bovino & Associates, PC, for assistance in creating a legally binding contract.
Legality
Every contract must adhere to the laws and requirements of the jurisdiction where they are operating. This includes all applicable local, state, and federal ordinances and laws.
It is not enforceable if a contract is created for an illegal product or action. This is true even if the parties were unaware of the illegal nature of the terms. If the agreement meets the laws in place, a lack of knowing this is enough to surpass the legal burden. Contracts that involve any criminal activity are not valid, either.
It is worth mentioning that there are nuances. The contract is required to adhere to the law where it is signed. In some situations, federal and state laws do not align, and in these situations, the guiding authority is provided by Article I, Section 10, Clause 1 of the U.S. Constitution.
There are other situations when a contract will not be legally enforceable, too, which include the following:
- Force Majeure
- Undue Influence
- Mistakes
- Public Policy and Illegality
- Unconscionability
Consideration
The ultimate purpose of a contract relates to what it provides – the consideration. This includes the value agreed to, regardless of whether it is an item or action. Protection from harm, services, and property are common examples of consideration.
You must note contracts do not have to include a financial component for them to be valid. An exchange of services or agreement is enough to meet this legal burden. The key is that there is an agreed-on value between those signing the contract.
Capacity
In simple terms, a person cannot sign their rights away. However, the reality of this is more complex. Contract law requires those signing to show they understand the contract’s terms, obligations, and consequences before it is signed.
The understanding is the “legal capacity.” Each party who signs a contract has to show this legal capacity to have a valid and enforceable contract.
Usually, the people who do not meet the capacity requirements include the following:
- Someone under the influence of alcohol or drugs
- Minors
- Someone with a brain disorder or memory problem (dementia)
- Someone who does not understand the language present in the contract
It is possible to overcome capacity-related hurdles. For example, minors can have a representative appointed by the court. In situations of a foreign language, the copy can be translated.
The ultimate decision related to capacity is determined by considering if all parties fully understand the meaning and words of and used in the contract.
Offer
Every contract begins with desire and responsibility.
This means that someone wants something, and someone else can fulfill the want – desire and responsibility. This is called the offer. It is an important element and encompasses the responsibilities and duties of all parties involved. However, it must also show some exchange in value. The value for this can be money or an outcome or action.
Offers only exist once they are received by the offeree (the requesting party). Once received, it can be altered, revoked, or terminated at any point before being accepted.
It is also possible for the offeree to issue a counteroffer. The initial offer is no longer in play if a counteroffer is made. Now the parties must negotiate or bargain to reach a new desired outcome.
Acceptance
After the offer is presented, the person who is presented with it can decide if they want to accept it or not. They can then communicate their decision in writing or verbally.
Acceptance will take several forms, which include the following:
Usually, counteroffers mean the initial offer is terminated; however, some situations provide for a conditional acceptance. For example, if new conditions are added to an offer, they will usually be acknowledged if both parties know the conditions and do not cause hardship or surprise.
Unlike other legal matters, inaction is not considered acceptable regarding contracts. When someone accepts a contract, it must be explicit. Both sides have to act.
Genuine Agreement
For a contract to be legally binding, all parties must know they are entering into an agreement. They must recognize the existence of a contract and are bound by the obligations outlined in the document.
If awareness is not established or one party signs under duress, the contract will become invalid.
How to Create a Valid Contract
As you can see, there are important elements for a contract to be legally binding. If you need help with creating a contract, contact the Law Offices of Bovino & Associates, PC today for a free initial consultation.