A contract is an agreement between two or more parties that is legally binding. A contract will provide the details regarding what the parties to the contract agreed to perform or to exchange.
A contract can be in writing or in an oral form. In the majority of cases, for a contract to be legally binding, it is required to be in writing and signed by all of the parties involved. A court will typically require three elements to be present in order for a contract to be enforceable, including:
- Mutual assent, or the parties agreeing to the contract terms;
- A valid offer and acceptance; and
Contracts are perceived as part of the foundation of the business world. Contracts may be very simple or they may be very complicated.
Examples of contracts that individuals may encounter in their daily lives include:
- Employment contracts;
- Real estate purchase contracts; and
- Insurance contracts.
A contract must be entered into by all of the parties involved voluntarily. All of the parties who are signing the contract are required to do so of their own free will and not under duress.
A contract may be used at any time the parties desire to document an agreement to ensure that the rights of all of the parties are protected. Drafting a contract involves the act of writing the details and the terms of the contract to determine as well as outline the legal rights and obligations of each party to the contract.
This will allow the parties to the contract to have an understanding of their duties and obligations to one another under the contract. Contracts can be drafted by any individual but it is in the best interest of all parties involved to have an attorney draft the contract, especially when it is complex or detailed.
For example, real estate contracts usually involve multiple portions, numerous parties, and complicated land descriptions. In order for an individual to ensure that their purchase or sale, a financial investment, and their rights are protected, it is preferable to have an attorney’s assistance when drafting this type of contract.
Contracts may also include sections that outline whether or not the contract can be canceled as well as how to cancel it. A contract will also provide the consequences when the parties breach the terms of the contract.
Well-written contracts provide clear definitions of what constitutes a breach of the contract so that all of the parties involved are able to uphold their duties.
How Does a Person Accept an Offer to Create a Valid Contract?
In order to create a contract, one party, referred to as the offeror, must make an offer to a second party, referred to as the offeree, and the offeree must accept that offer. The parties will then exchange consideration, or something of value.
An offer may be made to:
- A specific individual;
- A group; or
- The general public.
A common form of an offer is a sale sign at a local shop where any individual may walk in off of the street and pay money to own an item which is for sale. Offers may also include promises to perform particular services in exchange for money or other items of value.
In order to accept the offer, an offeree is required to show the intent to be bound to the terms of the offer, which may include signing an agreement or making a payment.
Are there Any Alternatives to Accepting an Offer?
If an individual is interested in something that is being offered but they are not completely satisfied with the details of the offer, which may include the amount, then they may be able to negotiate with the offeror. In many cases, however, an offeror has the ability to revoke the offer, or take it back, at any time.
If an offeree is faced with an unsatisfactory offer, they may:
- Reject the offer;
- Present a counter-offer; or
- Allow the offer to expire, if possible.
Can the Offer Be Revoked?
In general, an offer may be revoked at any time prior to its acceptance unless it is otherwise indicated. If an offer specifies that it will remain open for a specific period of time, typically, it cannot be revoked before that time period elapses.
What is an Option Contract?
One exception to the general rule that an offer may be revoked at any time before acceptance is an option contract. An option contract is typically used in situations involving:
- Commodities; or
- Real estate.
A purchaser and a seller of an option contract agree that the purchaser of that option has the right to sell or purchase an asset at a later date for a price that is agreed upon. An option contract is a tool which creates an opportunity for a purchaser to hedge their bets, so to speak, on multiple items prior to deciding on one item.
Due to the fact that the offer is open for a specific period of time, the offeror of the option contract is not permitted to modify, revoke, or sell the asset that is the subject of the contract to another individual.
How is an Option Contract Created?
An option contract contains two main steps for creation. An offeror makes an offer and then agrees that the offer will remain open for a specific period of time.
Second, there is valid consideration to create the option. For example, the potential buyer provides a deposit to keep the offer open without the possibility of modification, revocation, or losing the asset to another buyer.
What Happens if the Offer is Rejected?
If an offeree rejects the offer, then that offer is no longer available, even if the offeree changes their mind at a later date. If the parties agree, they can negotiate a new offer.
What Happens if a Counter-Offer is Made?
If a counter-offer is made, the original offer is rejected. If this occurs, the counter-offer becomes the new offer which is available for acceptance by the first party, or the original offeror.
When Do Offers Expire?
Offers may specify an expiration date, although it is not a requirement for an offer to have an expiration date. Therefore, an offer that does not have an expiration date may expire within a reasonable amount of time.
When is a Contract Not Enforceable?
There are certain circumstances under which a contract may not be enforceable. There are certain types of individuals who are not able to enter into contracts, including minors and mentally incompetent individuals.
Contracts may not be enforceable if adequate consideration is not provided. In addition, contracts may not be enforceable if there was fraud, mistake, or one of the parties signed the contract under duress.
When Do I Need a Lawyer?
A contract may be difficult to understand, very lengthy, and it may be easy to overlook an important provision. The general rule is you should never sign a contract you have not read.
However, individuals do so on a daily basis for many reasons. Prior to signing a contract, it will be helpful to have a contract lawyer who has experience with contracts review any offers, draft offers, and contracts before you become a party to one.
If you are unsure of any of the terms in a contract and you want to protect your future interests, your attorney can help. Your lawyer can also help ensure future complications, errors, and misunderstandings will not occur.
If any legal issues arise related to a contract, your lawyer will represent you in court. The easiest way to avoid future legal issues related to a contract is to have a lawyer review it prior to signing.