A simple legal contract creates a legally enforceable promise between parties where an offer was made and accepted. The basic elements of a contract include:

  • Both parties make their intentions clear to join into a contract together.
  • The contract is of a legal subject matter.
  • One party must present an offer.
  • The other party must accept the offer.
  • A consideration, or an exchange of something of value, is required.
  • In some cases, the contract must be in writing.

Consult with the laws of the state where the contract is formed to determine if any additional legal requirements exist.

Offer and Acceptance

A valid contract leans heavily on the offer and acceptance because it shows that the parties are agreeing to and understanding the terms of the contract. In reality, there are situations where a preliminary discussion and a full agreement can be confused by the parties. Due to this issue, there are laws in place that define when a contract legally exists. At it's most basic, when one party makes an offer, and the other party accepts, a contract exists. Contracts, depending on the type, can be oral or in writing.

An example of an offer and acceptance is seen every day in business. If you, the customer, requests that a promotional merchandise company make 500 custom water bottles and the company says they can complete the task for $1000; this is their offer. If you accept this offer and tell them to go ahead and start producing the water bottles, a contract has been made. However, if you say you need to think about it or you don't respond to the offer, the offer has not been accepted. If you respond with an acceptance but change the request, a contract has not been made because you have changed the terms of the original offer.

General Rules to Follow

If there is a delay when accepting an offer, an offer is revoked or a counteroffer is made, there may be an increase in contract disputes. To avoid this issue, there are general rules that should be followed including:

  • The length of time an offer remains open. A specific date may be put in the offer, or it will remain open for what is seen as a reasonable time. A reasonable timeframe will vary based on the type of business or facts that are specific to the situation. To avoid a dispute, put a specific end date to show when the offer expires.
  • Acceptance of the offer should be done as soon as possible to show intent and interest in entering into the contract. If you don't answer in a reasonable timeframe, the offeror can revoke the offer.
  • If a counteroffer is made, legally a response to accept, decline or give a counteroffer is given to the offeror. If the offeror agrees, a contract has been made based on the terms of the counteroffer.
  • An offer may be revoked, as long as the offer has not been accepted, whether based on the other party needing more time or submitting a counteroffer that changes the original terms.
  • An offer cannot be revoked if the contract offer has a specific acceptance date that has been listed, also called an option.
  • An exchange of value, or consideration, is required as it shows that there is an agreement to complete the contract. A key requirement of consideration is that it is not one-sided. For example, if a friend agrees to help you landscape your yard without receiving anything in return, that is a gift, not a consideration.

Steps to Write a Business Contract

Basic guidelines when writing a business contract include:

  • An offer, acceptance, and consideration.
  • Online contract templates may be used but should be reviewed so that the terms match what you need.
  • Full, legal names of all parties should be listed unless the contract is with a business such as a limited liability partnership, partnership or company. In this case, the business name should be used.
  • Any conditions should be listed such as if a specific brand of cleaner, paint, or similar item will be used.
  • The consequences of a breach of contract should be listed to clearly state what will happen if the contract is not completed, delayed or the conditions are not met.
  • All terms and agreements should be listed clearly.

To finalize the business contract, all parties involved should sign and date the contract. The use of witnesses is recommended in case of future legal disputes. In some cases, a notary may be used as well.

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