Legal Contracts: Everything You Need to Know
Legal contracts are legally valid agreements made between two parties that require each party to do or not do something and can be upheld in a court of law. 3 min read
Legal contracts are legally valid agreements made between two parties that require each party to do or not do something and can be upheld in a court of law.
What Is a Contract?
The parties involved in a contract can be people, business entities, or organizations. Contracts are not always written; they can also be verbal.
These are the main elements needed for a legally valid contract:
- Mutual assent
- Expressed offer and acceptance
- Fair consideration
If a contract is breached, the guilty party can offer a solution in the form of any of the following:
- General damages
- Consequential damages
- Reliance damages
- Specific performance
In order for most contracts to be considered valid they need to have agreeing parties with one party accepting an offer given by the other and an exchange or promise of exchange of something valuable like cash, products, or service.
Consideration and Mutual Assent
Any time a responsibility is created by one party because of a promise made to another, a contract is taking place. In order for that contract to become bound by law, the promise has to be traded for adequate consideration.
Adequate consideration is defined in two ways:
- Benefit-detriment theory means that the promise was made for the good of one party at a cost to the other party. Gifts do not count as contracts because the party giving the gift is doing so out of charity or generosity and is not expecting anything in return. When a promise is made to the detriment of one side, the other side is forced to offer something in return, therefore creating a contract.
- Bargain theory means that the promise has been bargained for. The focus here is on what is being exchanged. Something is being bargained for and a promise is made by one party in order to gain that thing.
Agreement Between the Parties
Even though it's a fairly obvious element, it must be noted that the parties involved in a contract have to agree on its basic terms in order for it to be valid.
Sometimes in can be hard to tell the difference between when two parties are in agreement and when the potential agreement is merely being discussed.
There are rules in place to help determine when a contractual agreement legally takes place.
Offer and Acceptance
Basically, one party must offer something and the other side needs to accept that offer. This can happen in writing or by word of mouth. The legal contract is then put in place.
Say you are looking to purchase some personalized supplies for your company and you head into a shop where a worker offers to make you 500 business cards for $15.
You agree that this is a good price and ask the worker to go ahead and make the cards. So you've officially accepted the offer and are now required to pay $15 if the cards are in fact made and given to you. If you decide to keep shopping and tell the worker that you want to look around first, you did not accept the offer, so you're not required to pay and he's not required to make the cards.
Say you like the offer, but ask for 250 cards instead of 500, you still have not accepted the offer, and the contract is nonexistent, or unenforceable, because you didn't accept one of the major terms, namely the amount of cards. A new offer for the price of 250 cards would need to be made by the worker and accepted by you.
How Long an Offer Stays Open
Offers tends to stay open or available for a fair amount of time unless there was an expiration time or date specified along with the offer.
The understood fair amount of time for an offer will depend on what kind of offer was made.
If you have a specific time in mind, it's always good to specify an expiration date. That way it's clear that a decision needs to be made in a timely manner.
Any time an offer has been made but not yet accepted, the person or business making the offer can change the terms or complete revoke it.
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