Contract law requirements refer to the legal requirements that apply to the formation and fulfillment of a contract. In order for a contract to be legally enforceable, it must contain certain elements and comply with all applicable laws. Failure to meet contract law requirements will render a contract invalid. In the event that a legally-binding contract is breached, the non-breaching party has the right to take legal action against the breaching party.

What Is a Contract?

A contract is a promise that is enforceable by law. It is an agreement between parties who intend to create legally-binding mutual obligations. If one party fails to hold up his or her end of the deal, the other party can use a variety of legal remedies to seek compensation. If you own or run a business, you may have to enter into contracts with many different types of individuals or organizations, including:

  • Employees
  • Vendors
  • Contractors
  • Customers
  • Commercial landlords
  • Utility companies
  • Banks
  • Insurance companies

A contract typically comes in the form of a written agreement and includes the following elements:

  • Introductory material, which is also sometimes called whereas provisions or recitals
  • Definitions of key terms
  • Statement explaining the purpose or purposes of the contract
  • Obligations of each contracting party and conditions that will possibly trigger obligations
  • Assurances for different aspects of the contract, which are sometimes referred to as representations, warranties, or covenants
  • Boilerplate provisions
  • Signature block
  • Attachments or exhibits

Contract Requirements

Offer and Acceptance

An offer refers to a party's expression of willingness to enter into a contract with another party on certain terms. It is made with the understanding that the agreement will become legally-binding when it is accepted by its recipient. As part of a legally-binding contract, an offer must include the following elements:

  • The offeror's statement of present intent to enter into a contract
  • Specific proposal with clear and certain terms
  • Communication identifying the offeree

Acceptance is the offeree's final and unqualified expression of agreement to the terms of an offer. An offer can only be accepted by the party to whom it is made or an agent who is authorized to accept it on behalf of that party. If the offeree decides to change the terms of the offer, it means that he or she has declined the initial offer and made a counter offer, which the other party may or may not accept. Acceptance of an offer takes place when the offeror and offeree sign the contract.

Legal Purpose

In a contract, the legal purpose refers to the intention of each contracting party. The terms of a contract must comply with state laws and regulations. If the legal purpose is not stated, a contract is regarded as invalid or legally unenforceable. In addition, the purpose of a contract must not violate the law.

Capable Parties

Parties who enter into a contract must be competent. In order to be considered competent, they are required to have the following characteristics:

  • Legally old enough to sign a contract
  • Mentally capable enough to understand the contract they are signing
  • Not impaired when signing the contract

Mutual Assent

In order to create a legally-enforceable contract, the participating parties must show a common intention or have a meeting of minds on the contractual terms. They are required to agree in the same sense to the same thing at the same time. They must clearly show their intention to be legally bound by the agreement and agree on the essential terms. If one party has been fraudulently misled into signing a contract by another party, the contract may be regarded as void.


Consideration can be any of the following:

  • Significant expenditure of effort or money
  • Promise to perform a certain service
  • Agreement to avoid doing something
  • Reliance on the promise

Basically, consideration is something that one party promises to “pay” in order to fulfill a contract. It is something of value, usually a defined monetary amount. It must be distinctly agreed upon by both contracting parties or clearly implied by the contractual terms. Each party to a contract must provide or promise something valuable to the other. In the absence of this exchange, a contract does not exist.

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