The basic elements of a legal contract include an offer, acceptance of the offer, and consideration. Because legal contracts can be very complicated, however, it's best to examine this issue in detail.

What Makes a Contract Legal?

When a breach of contract occurs, it's common for the damaged party to file a lawsuit. Before the court can award a remedy, however, it will need to decide if a contract actually existed. The plaintiff in the case will have to demonstrate that the contract includes four important elements:

  • Offer.
  • Acceptance.
  • Consideration.
  • Mutuality.

An offer is the first of the four elements of a legal contract. Basically, an offer is a promise from one party to another that they will perform an action or avoid performing an action in the future.

Consideration is another element that is required in order for a contract to be legal. For consideration to exist, one party must be given something in exchange for their action or inaction. The exchange must involve something of value, and this can take many forms:

  • Performance of a service.
  • A set amount of money.
  • An agreement to either do something or not do something.

Consideration is best understood as the incentive that causes the parties to agree to the contract.

The next element needed for a legal contract is acceptance. This means that the offer was unequivocally accepted. Acceptance can take many forms, including through actions and words. For example, performing the action described in a contract could be considered acceptance. However, acceptance needs to match the offer for it to be valid. If the acceptance doesn't mirror the offer, the contract likely would not be valid.

When a contract is entered into for the purpose of selling goods, however, the offer and acceptance do not need to match for the agreement to be legal in most cases. The exception to this rule is if the acceptance alters the terms of the original contract in a significant manner, or the person who made the offer objects to the acceptance within a reasonable timeframe.

Mutuality is the final element of a legal contract. For mutuality to exist, the two parties must have had a meeting of the minds, meaning that both parties fully understood the terms of the agreement.

If the plaintiff in a breach of party contract is able to prove that all of these elements existed, the court will usually decide that the contract was valid. To end the lawsuit, the defendant would need to find some way of proving that one or more of the elements were not in place.

Difference Between Written and Oral Contracts

Both written and verbal contracts can be legal. While these contracts are similar in many regards, there is a major difference between the two in how lawsuits can be filed. Written and oral contracts have different statutes of limitations, meaning there will be different timeframes for each when you can file a lawsuit for breach of contract. 

With an oral contract, there is a four-year statute of limitations for filing lawsuits, and with a written contract, there is a six-year statute of limitations. There are certain exceptions to this rule, however. If a contract was written for the sale of goods, the standard time limit to file a lawsuit will be four years. The parties, however, can agree to a shorter statute of limitations, as long as it is not shorter than one year.

When the court examines the legality of a contract, it will read the whole contract and take into account the standard definition of the words used in the contract. Intention is another factor that the court will take into account. The court will attempt to determine the intent of each party at the time the contract was created, and if the intention isn't easily detected, the court may examine typical contracts related to the same industry in the same location.

If the court is trying to determine the intention of the parties in an oral contract, several factors can be considered, including the circumstance that existed at the time the contract was formed and how the parties interacted with each other. Capacity and competency can also be determining factors in the validity of a contract. For a contract to be valid, both parties must have the legal capacity to agree to a contract, complete their duties, and hold liability if the contract is breached.

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