As a business owner, the contracts you make with your suppliers, distributors, employees and customers help keep your company running smoothly and efficiently. Consequently, you need to know the elements that a legally valid contract must have.
The Legal Information Institute explains that all legally enforceable contracts must contain the following four elements:
- Offer and acceptance
- Consideration
- Capacity
- Legality
1. Offer and acceptance
The offer is a promise that one contract party makes to the other party to do or refrain from doing something. The other party accepts this offer by signing the contract.
2. Consideration
The accepting party, however, cannot expect to benefit from the offer without promising something in return. This is the consideration set forth in the contract. Consideration usually takes one of two forms: bargain-for-exchange and benefit-detriment. In the former, you and the other contract party agree to transfer things to each other, such as supplies in exchange for payment therefor. In the latter, one of you (Party A) promises to benefit the other (Party B) in some way in exchange for Party B’s promise to refrain from doing something that would negatively impact Party A.
3. Capacity
Both parties must have the capacity to make the contract. In general, this means that both or you must be age 21 or older and able to understand what you are agreeing to do or not do.
4. Legality
Finally, the purpose of the contract must be a legal one. In other words, you cannot have a legally enforceable contract that calls for either party to engage in criminal or otherwise illegal behavior.
Please contact our law firm for more information.
