Many people make and sign contracts every day. Some keep their agreements simple, and others make contracts enforceable. While some entrepreneurs do business and enter into agreement with a mere handshake, a valid contract is necessary when so much is at stake.
Why do you need a written contract? Some agreements like contracts to buy homes need to be in written form to be legally binding and enforceable. As a business owner, contracts or agreements can make you confident that you have had negotiated the best terms for your business. A clearly written business contract can prevent disputes between the parties. In contracts for the buy and sell of goods, it can also mean protection with respect to performance, which verbal agreements do not provide.
There are several elements to make a written agreement valid or legal. For a written agreement to be enforceable, the following elements of a contract must be stated.
The Offer, Acceptance and Mutual Consent
The contract must include a specific offer and acceptance. The offer is an expression of willingness to contract on certain terms and made with the intention that it shall become binding when the offeree accepts it.
The acceptance echoes the terms on which the offeror is prepared to contract and the offeree is willing to be bound. A mutual consent is reached when an offer is met with an acceptance or when they agree upon the same thing in the same sense. Likewise, the terms of the agreement will only be deemed valid when agreed on by both parties of their free will. If a purported acceptance does not meet the offer, it is not an acceptance but a counteroffer.
Contract Consideration
For a contract to be valid, there must be some form of consideration involved. Consideration is what one party will get from the other party in return for a service or product. However, there are exceptions to this general rule, such as an agreement for a gift or a promise to pay a time-barred debt or to compensate for a past voluntary service. In other words, both parties must get something out of the contract.
The main purpose cited for the consideration is the cautionary requirement - that ensures that contracts are made with the consent of both parties. Thus, consideration is an essential element for the making of a valid contract. In addition to that, the contract should include the delivery date, the date of payment and description of the item or offer or service.
Contract Formation
Any person is free to contract on any terms he/she chooses at any time he/she pleases. However, there are rules that govern the formation of a contract, may it be a real estate contract or a business sale agreement or an employment contract.
A contract is a legally binding agreement. Thus, both parties must be of sound mind to be considered competent to contract. Both must be sober and neither can be mentally deficient. A person at the time of making the contract should be capable of understanding the content and able to form a rational judgment as to its effect upon his/her interests. This means that neither party should be at a minor age.
Lawful and Legal Objectives
Every agreement must be so certain and complete that each party may have an action upon it; and the agreement would be incomplete if either party withheld his assent to any of its terms. Statements or promises should be true and correct.
In the same way, before sealing the deal, parties must be sure that the contract will be an agreement for something legal. This means that the products to be delivered are not forbidden or the services to be done are not prohibited. The parties cannot enter into a contract that has terms contrary to any law. A fraudulent or immoral contract or one that would be contrary to public policy is void.
Clear Terms of Agreement
The terms of the agreement must be clear, otherwise, it cannot be enforced under law. A contract must state the agreed duration, including options for extension. The obligation of the parties with respect to performance should also be stated in explicit detail. If time is “of the essence,” the contract should so specify.
A contract should stipulate how its terms shall be enforced and what remedies can be taken if one party fails to meet his/her obligations. A “force majeure” clause may defer performance obligations upon the occurrence of events beyond the parties’ control. There are parties that include an “out clause” in their deal wherein a party can opt to get out of the agreement at a certain time.
When prepared right, contracts or written agreements are lawful and legal. Thus, before sealing the deal, review the document, and if in doubt, consult a lawyer who is well-versed in contract law.
Sources
- Business Agreements and Contracts, Yale University, Yale.edu, copyright 2004
- What's a Contract,Advice Services Alliance, Advicenow.org.Uk
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