To understand contract validity you first need to understand what elements are in a contract. The formation of a legally binding contract must entail six basic elements. These elements are essential to the contract's enforceability and they include:

  • Offer
  • Acceptance
  • Consideration
  • Mutuality of obligation
  • Competency and capacity
  • A written instrument

What Does a Contract Include?

The offer must include who is offering what, and which party is accepting the offer. The acceptance will contain what the parties have agreed to accept. If the agreement does not reflect the original offer, then this would be considered a counteroffer.

The bargaining element of a contract is the consideration, this could be money, a promise to perform a service, or something of interest that will be exchanged between the parties. The consideration is the worth that encourages the parties to enter into an agreement.

It is important for a mutuality of obligation to take place in establishing a contract. This is successful when the parties involved have a meeting of the minds. They have agreed and understood the basic elements and terms, and both parties intend to carry out their promises.

Parties entering into a contract must be competent and capable of being held liable to undertake the duties agreed upon. Competency and capacity of the parties could become questionable in certain circumstances. For example, the law considers a minor too immature to negotiate on equal terms and therefore will not hold them accountable for entering into a contract of any sort.

A contract or an agreement expressed in writing is considered a written instrument. Many statutes require that a contract or agreement be a written document in order for them to be binding and enforceable.

All contracts must be lawful; the court will not enforce a contract to carry out an illegal act.

What Is a Duration Provision?

Most contracts will have a duration provision describing the duration of the contract in terms of how long it will take obligations to be met. The expectation will vary depending on the services or product being offered and accepted.

For example, in housing construction contracts there is usually a date provided that states when the work should be completed and when the client can take possession of the home. These terms are also based on a practical completion date. Weather, unexpected delays, and other unforeseeable events can change the course of the project and the expected date of completion as well. It is best to have a clear understanding between all parties in regards to the duration of the contract being entered.

Why Are Additional Terms, Clauses, and Provisions Needed?

In order to avoid later disputes and misunderstandings, additional terms, clauses, and provisions may be included in a contract document. This is often an extra layer of protection for both parties to prevent misunderstandings and to ensure the contract will be enforceable if conflicts arise.

Dispute resolution provisions can be beneficial in guiding negotiations in which all parties attempt to reach an agreement and prevent a lawsuit. While these may not be essential, in certain situations they can be the deciding factor in court as to whether or not the contract is an enforceable agreement.

A written expressed agreement entered into between two or more parties to deliver a product or provide services is considered a binding contract. A contract is enforceable when both parties agree to something, back the promise up with money or something of value, both are in sound mind and intend to carry out their promise, and what they promise to do is within the law.

When is a Contract Valid?

An enforceable contract must be lawful, agreed upon, and include a bargaining element. All parties must be competent and capable of performing the duties set forth in the contract. If a contract is missing a necessary component, it is void. In instances where a contract is considered void without dispute, both parties can simply walk away without having to appear in court for a formal termination.

A voidable contract, unlike a void contract, is optional to remain valid at the desire of one of the parties. In other words, one party of the contract remains bound and the other party may choose to void or reject the contract if they so desire.

Most importantly, all parties must agree to what is being offered and agree to the terms in which they are accepting the offer. A valid contract will always include something of interest being exchanged between the parties, therefore, making it inviting to enter into the agreement.

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