What Are the Elements of a Legally Binding Contract?

What Are the Elements of a Legally Binding Contract?

At some point all business owners have to deal with the process of creating a contract. However, just because you write out a contract doesn't necessarily mean it is legal. There are certain elements that need to be properly expressed in a contract to give it validity. Contracts that are missing these key elements may not be enforceable by law. When creating a contract, it is imperative to ensure that the following four elements are clearly explained.

Details About the Offer

The first element of a valid contract is the offer. This is the promise made by one party in exchange for the other party's promise. A promise can include the intent to perform an action, or to refrain from doing something. Once an offer is made, it creates the power of acceptance in the selected recipient. At this point, the other party can accept or terminate the offer.

A Clear Acceptance

It is important for a contract to show that the offeree fully accepts the terms. Specifically, the offeree must show that he or she unequivocally assents to the terms of the contract. The offeree must also do so in the way specified by the contract. A contract can be terminated if the offeree does not accept in a reasonable time, or fails to do so in the correct manner.

Sufficient Consideration

Another important aspect of contract creation is consideration. This is a legal term of art that stands for the value exchanged between the parties. Consideration can be monetary in nature, or can be satisfied by the making of a promise. Contract preparation problems can arise when the amount of consideration is insufficient. Courts look to see if there is a legal detriment to the offeree in order to analyze this element. When consideration is lacking, the court may invalidate the contract.

The Parties Intentions

Beyond the offer and acceptance, the parties must demonstrate an intent to be bound by the contract. Essentially, there must be proof that the parties wish to create a legal relationship with each other. This relationship needs to be based on a clear understanding of the terms and obligations involved. Both parties must also enter into this relationship freely. If a party is coerced, or unfairly persuaded, the contract can be unenforceable.

Other Key Aspects

The above elements only cover some of the main aspects of a valid contract. In reality, contract preparation will be a lot more complex. Business contracts should be prepared by an experienced lawyer who is familiar with business law. An unenforceable contract can seriously hamper your bottom line. Don't take risks by trying to create contracts on your own. Contact a reputable law firm, such as Spencer and Collier, for professional assistance in contract matters.

Tags: business contract, contracts