Find firm news and announcements, recent articles, and more!
Is Your Contract Protecting Your Business?
May 2, 2012
As a business owner, you know that it makes sense to “get it in writing” in order to protect your interests, but do you know the basic components of a contract that ensure that it is valid and enforceable? Although contracts are used by a wide range of businesses, and for varying purposes, the basic components of a contract are constant. Understanding these basic components can ensure that your business agreements are legally enforceable.
There are three major components to a contract. First, one of the parties to the contract (the offeror) must make an offer. A valid offer is clear, definite, and communicated to the offeree. For example, you might offer the specific services that your business will provide to a potential client. Usually, a social invitation or an offer made in excitement or in jest does not constitute a valid offer.
Second, the offeree must clearly accept the offer in the way specified by the offeror. Finally, the contract must be supported by consideration, which is also known as the bargaining requirement. Consideration is the exchange between the parties of something that holds value, such as the fee for your services. If there is no consideration, the contract is unenforceable.
In addition to ensuring that there is a valid offer, acceptance, and consideration, there are other requirements to establishing a valid and enforceable contract. First, all parties must have the capacity to enter the contract. “Capacity” refers to the ability to know and understand the terms of a contract. While corporations and adults have capacity, minors, some individuals with developmental disabilities, and those who are intoxicated do not have capacity to contract.
In addition, the parties must be in mutual agreement. As a result of this requirement, courts say that there must be a “meeting of the minds” to establish a valid contract, meaning that each party understands the contract, and that there is no mistake or misunderstanding. Likewise, the contract’s object and purpose must be legal, or the contract may be void. For example, a contract involving the purchase of stolen items, drugs, fraud, or harming someone is illegal and therefore is void. Last, the form of the contract must meet the legal requirements.
To learn more about contract issues, we invite you to join us at the Demystifying Contracts Seminar on May 15 at AcQua Restaurant at 4pm.