How to Form a Contract?

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 What Is A Contract?

A contract is a legal agreement between two or more parties, which documents their promise to sell goods or perform services. Although a contract can be oral, it is generally recommended that you put the terms of the agreement in writing, so as to decrease the potential for disputes associated with what each party agreed to do. When a dispute arises in which one party alleges that the other has failed to fulfill their obligation under the contract, the other party may sue for a breach of contract.

In order for a contract to be considered valid, it must fulfill all of the legal requirements for a valid contract. These requirements are set forth by state and federal laws; generally speaking, a legal contract should meet the following requirements:

  • Offer and Acceptance: One party needs to make an offer, and the other party must accept the offer. Both offer and acceptance must be done in such a way that is clear and unambiguous;
  • Assent: Both parties must mutually assent to the terms of the contract. Additionally, they should be clear as to the terms, words, and definitions that are used in the agreement; and
  • Consideration: Each party must exchange something of value. An example of this would be how one party is generally providing a service or goods in exchange for monetary payment.

Some contracts must be in writing in order to be considered legal. Examples of these include contracts for the sale of real property, and contracts for the sale of goods that are worth over a certain amount (generally $500).

How Do I Form A Valid Contract?

Only valid contracts are enforceable. The requirements for forming a contract are fairly simple, and are intended to show that there was mutual assent between the parties to enter into a contract.

An example of this would be if you own a restaurant, and you entered into a contract with a vendor to purchase live lobsters. The vendor brings a shipment of frozen lobsters and you demand that they take the lobsters back, and bring you the live lobsters that you ordered. Here, the parties did not have a meeting of the mind regarding the terms of the contract.

The elements that are necessary to form a valid contract are:

  • Offer: An offer is essentially a promise by the offeror to do something for the offeree;
  • Acceptance: The offeree has received your offer and may determine whether to accept it or reject it. Acceptance can be difficult to prove as you may have issues of revocation, counteroffer, expiration of the offer, or improper method of communicating the acceptance.
    • An example of this would be if you send an email to your friends, offering to sell your current phone for $50, but you do not say how long your offer is good for. One friend goes to the bank immediately after receiving that email and withdraws money, but has said nothing to you about their intentions to buy the phone from you. You rescind the offer twenty minutes after you made it because you decided to give the phone away to someone else. Under these facts, it is difficult to conclude that the friend has accepted the offer before the offer was withdrawn.
    • Another example would be if they did respond to the email immediately, indicating the acceptance of the offer. While they are at the bank getting the money for the phone, you decide the phone is worth more than $50. When the friend presents you with the $50, you tell them that you are now selling the phone for $75. It would be too late to withdraw the offer because they have already accepted the offer at $50;
  • Consideration: If you offer something valuable or beneficial in exchange for the offeror’s promise, this would constitute consideration. Consideration does not need to be financial in nature; and
  • Legal Purpose: A contract must be made in order to serve a legal purpose. Buying a home to live in would be a legal purpose. Buying a home to use as the base of operations for an illegal business would not be considered a legal purpose, and your contract will be found invalid.

What Are Some Problems Associated With Forming A Contract?

A breach of a legal contract is considered to be a legal violation. If one party fails to fulfill their contractual duties, a lawsuit will generally result between the two parties in which the non-breaching party will sue the other party for any damages that were caused by the breach of contract.

Even if the court finds that there was a contract between the two parties, it may decline to enforce the contract because there is an issue associated with the capacity of one or more persons who entered into the contract.

To reiterate, each party to the contract must knowingly enter into the contract. If there is an issue raised in terms of the capacity of either party to have entered into the agreement, the court will consider the party’s age and mental capacity. It is important to note that state law varies in terms of whether a minor may enter into a binding contract, or whether a party who is mentally incapacitated can knowingly enter into a contract.

Another example would be if someone signed an agreement on behalf of a company to sell certain assets. The company challenges the contract as invalid because that party was not an authorized agent of the company at the time the contract was signed. The court may decline to enforce the contract, even though it is valid.

What Else Should I Know About Contracts In General?

There are many reasons why a contract can be invalidated. The most common reason is when one of the requirements that were listed above was not met. An example of this would be how if only one party assented to the agreement, the contract is not legally binding.

Depending on the specific circumstances, a court can declare a contract void. This means that the contract is canceled, and it is as if it never existed. The parties might then be released from their duties. In other cases, the court may declare the contract “voidable.” What this means is that the parties can cancel the contract at their own election. The difference between void versus voidable contracts is considerably technical, and may require the assistance of a lawyer.

Alternatively, the court may issue an injunction requiring the breaching party to fulfill their contractual obligations. The choice of remedies in a contract case can vary considerably, depending on the type of breach and the type of legal contract involved.

Do I Need A Lawyer To Form A Contract?

If you are considering entering into a contract, you should seek the advice of a local contract attorney. An experienced contract attorney can help you articulate the terms of the contract to best reflect your wishes, and negotiate with the other party to the contract.

A local lawyer can also help you better understand your legal rights and options according to your state’s specific contract laws. Finally, an attorney will also be able to represent you in court, as needed, should any legal issues arise.


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