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How to Form a Contract

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How Do I Form a Valid Contract?

Forming a contract may seem simple. However, the question of whether a contract is legally binding is the subject of many lawsuits. Contracts are involved in nearly every transaction, including the sale of goods, the sale of property, employment agreements, and large commercial transactions.

A contract is basically a promise to do or not to do something. A valid contract can be enforced in court. However, there are certain steps one must take to form an enforceable contract. A contract, in its most basic form, must include a "meeting of the minds." Although it is always advisable to put a contract in writing, many oral contracts are valid. If there is a dispute as to whether a legal contract has been formed, the court will determine if the following elements exist in the contract:

  • An offer
  • An Acceptance
  • Consideration
  • A legal purpose

What Is an Offer?

An offer is the first step to forming a contract and arguably the most disputed element. An offer must be clear, definite, and certain. It is the manifestation of one’s willingness to enter a contract. It must be presented in such a way that the other party is justified in believing that a contract will be formed by agreeing to the offer.

There are also certain time limits that determine how long the offer will stay open. These limits vary depending on the type of contract, the language included in the contract, and even the state.

What Is an Acceptance?

An acceptance is just that—accepting the offer on its terms. Generally, the acceptance cannot change the terms of the offer, although there are varying rules depending what kind of contract is at stake. For example, strict compliance to this rule will depend on whether the contract is for services or for the sale of goods. However, as a general rule, a material change in the terms will constitute a counteroffer. This concept is embodied in the saying that the "offeror is the master of his own offer."

What Is Consideration?

Consideration is the benefit that each party receives from the other. If there is no consideration, then one party is either giving something away or taking something for nothing. Exchanges of this nature are known as gifts.

Consideration for a product or service is often provided in the form of money. This benefit can be in the form of a promise or the exchange money.

What Is a Legal Purpose?

Although this may be common sense, it is important to note that the contract must be made for a valid, legal purpose. For example, you cannot form a valid contract for the exchange of illegal drugs for the sale of illegal prostitution. A court won’t uphold a contract for illegal products or services.

Exceptions and Defenses to Forming a Valid Contract

Contracts law contains many exceptions and loopholes. There are all types of defenses and excuses a party can use to invalidate a contract. They include, but are not limited to, a party lacking competence, mistake, misrepresentation, duress, undue influence, unconscionability and the contract is against public policy.

Seeking Legal Help for a Contract Formation Issue

Forming a contract is a very complicated process and the rules vary depending on the type of contract at issue. Additionally, there are many ways to invalidate a contract. An experienced business attorney will assist you in drafting a contract that will hold up in court in the event of a dispute.

Photo of page author Nicole Shoener

, LegalMatch Legal Writer

Last Modified: 05-22-2014 02:40 PM PDT

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