Though verbal contracts are still legal, the days of doing business on a handshake are mostly behind us. In today’s uncertain world, a well-drafted contract can protect you in case a dispute arises.
In order to provide protection, a contract has to be enforceable. Here are the essential elements of a legally binding contract.
The first thing that a contract must contain is an offer. An offer states the terms of the agreement. It must be precise and definitive.
An offer is important because it contains the explicit terms of the agreement that both parties will follow.
Consideration means that both parties must provide something of value. If one party does not give anything in return—such as a service, good or reimbursement—then the agreement is a gift, not a contract.
Mutuality of obligation
Mutuality of obligation ensures that if one party fails to deliver on their obligations, the contract will become invalid. This means that the other party no longer has to deliver on their end of the deal. This concept is also known as the “meeting of the minds.”
The party who receives the offer must accept the terms and conditions of the agreement exactly as they appear in the offer. Accepting the offer means that the two parties agree to the terms of the contract.
Changes or amendments made to an existing offer are considered counter offers that can be accepted, rejected or revised.
A contract is only enforceable if the parties entering into the agreement have the capacity to do so. Common reasons for incapacitation include alcohol/drug-induced impairment, a mental health condition and an individual being a minor.
A good contract will contain all these elements. Having a solid contract can ensure that your interests are protected in a business deal.