Valid Contract Example and Legal Distinctions Explained

Key Takeaways

• A valid contract requires offer, acceptance, consideration, capacity, free consent, and a lawful objective.
• Contracts may be void (never enforceable) or voidable (can be canceled by one party).
• Common valid contract examples include employment agreements, lease contracts, and NDAs.
• Void contracts lack legal enforceability from the start due to illegality or impossibility.
• Contracts can also be unenforceable due to missing formalities like required signatures or statutory compliance.

A valid and void contract are two different types of contracts that parties should be aware of. Specifically, a valid contract is one that was entered into legally and is fully enforceable. This means that it includes all of the required elements of a contract. A void contract, however, is one that a court will deem invalid for a number of reasons, whether it be due to the inability to meet all required elements or any other potential issue that might deem the contract void and therefore, unenforceable.

Elements of a Valid Contract

A valid contract is one that includes all required elements, including the following:

1. An offer made by one party
2. An acceptance given by the receiving party
3. Consideration exchanged between the parties
4. Mutual assent of both parties
5. Legal capacity

One of the parties must make an offer to another party, known as the offeree. The offeree must then accept the offer as is, without altering the terms. Thereafter, the parties must exchange consideration, which can be something of monetary value or a promise to do what is expected of them under the agreement.

While the parties might properly have an offer, acceptance, and consideration, this doesn’t necessarily mean that the contract is valid at this point. The parties must have entered into the contract voluntarily and without threat, force, or coercion. Lastly, the parties must have legal capacity to enter the contract. Legal capacity means that the parties must be at least 18 years of age, mentally competent, and not under the influence of alcohol or drugs when having signed the contract.

When it comes to identifying the elements of the contract, and undergoing the steps required, it might take time to accomplish such elements. For example, the offer might be made but not accepted. Instead, the offeree might change the offer by making a counter offer. If this occurs, the original party making the offer is now on the receiving end, and must accept the counter offer.

When all of the aforementioned elements have been met, the parties must confirm that the subject matter of the actual contract is legal. The agreement can be something that would otherwise be fraudulent or illegal. For example, the parties can’t agree to engage in a crime with one another. This contract would not only be void, and therefore invalid, but the parties might also be arrested for an attempt to carry out a fraudulent or illegal activity.

Valid Contract Example

A clear valid contract example is a written agreement between a freelance graphic designer and a small business owner. In this contract:

• The designer offers to create five marketing banners (offer).
• The business owner agrees to pay $1,000 for the service (acceptance).
• The agreed payment and work are exchanged (consideration).
• Both parties sign the document willingly and are legally competent (mutual consent and capacity).
• The services and payment terms are lawful (legal object).

Other common valid contract examples include:

• Employment agreements between a company and employee.
• Rental lease agreements between a landlord and tenant.
• Service agreements with vendors for web hosting, repairs, or consulting.
• Non-disclosure agreements (NDAs) protecting confidential business information.

All these examples meet the fundamental elements of a valid contract and are legally enforceable in court if breached.

Void vs. Voidable

When identifying if a contract is void or voidable, it is important to know the difference between these two terms. If a court deems a contract void, it means that the contract is invalid and unenforceable. Essentially, the parties will walk away as if the contract never existed. If a contract is voidable, however, this means that one or both of the parties have an opportunity to void the contract. For example, if the court indicates that the contract is voidable by either party, the parties in the contract can choose to either void the contract or continue with the agreement and perform under the agreement. If one of the parties chooses to void the contract, but the other party doesn’t, then the contract will still be deemed void.

A court might deem part of the contract void or voidable, or not all. This could be done with regard to certain provisions of the contract that might otherwise be unfair to one of the parties. When this occurs, the parties are required to negotiate those void terms in the contract and edit or remove them altogether to satisfy the court’s judgment.

An example of when a contract might be voidable is when one of the parties was under the influence of alcohol when having entered into the agreement. While there is generally a determination that the contract is void due to the fact that one of the parties wasn’t legally capacitated, the fact that someone is under the influence of drugs or alcohol while signing the contract might only deem the contract voidable by that party. Therefore, if that party still wants to move forward with the deal, they can.

Key Differences at a Glance

This distinction is crucial in real estate, business, and employment contexts to avoid disputes and protect your rights.

Unenforceable Contracts

Not all agreements that appear valid are legally enforceable. An unenforceable contract has all the basic elements of a valid contract but cannot be enforced in court due to technical or legal issues.

Unenforceability may arise from:

• Lack of proper documentation (e.g., oral agreements where written contracts are required).
• Expiration of statute of limitations (too much time has passed since the breach).
• Ambiguous or missing essential terms (e.g., vague payment terms).
• Failure to comply with legal formalities, such as notarization or witness signatures where required by law.

Unlike void contracts, which are never legally valid, unenforceable contracts may be valid in formation but are legally defective in execution.

Frequently Asked Questions

1. What makes a contract valid?
   A valid contract includes offer, acceptance, consideration, mutual consent, legal capacity, and a lawful purpose.
2. Can a contract be valid but unenforceable?
   Yes. If a contract lacks proper documentation or violates legal formalities, it may be valid in form but not enforceable in court.
3. What is a common example of a valid contract?
   A lease agreement signed by both landlord and tenant, specifying rent, terms, and responsibilities.
4. What voids a contract?
   Contracts become void if they involve illegal activities, impossible obligations, or parties without capacity.
5. What’s the difference between void and voidable?
   Void contracts are never valid; voidable contracts start valid but can be canceled by one party under certain conditions.

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