What Are the Elements of a Valid Contract?A contract is a legal agreement in which two or more parties agree to engage or not engage in certain actions in exchange for something of value. To be considered valid by the court, a contract must contain five key elements: offer, acceptance, consideration, mutual obligation and capacity and competence to consent. Certain contracts must also be in writing. If a contract doesn’t have all five elements, it will not be legally upheld.

Existence of an Offer

An offer is simply a promise made by one party in exchange for a specific action or lack of action by another party. For example, if you tell your neighbor you will pay him $4,000 for his truck and he agrees to deliver the truck and transfer title upon receipt of the funds, this constitutes an offer and is legally a contract if the other elements are in place.

Acceptance of an Offer

The other party must agree to the offer in question to validate the contract. This can be in any reasonable manner, such as a handshake or an oral agreement, unless a specific manner of acceptance is stated when the offer is made. Acceptance can only occur if the person knows of the offer, states an intention to accept the offer and unconditionally agrees to its terms.

Understanding Consideration

Consideration refers to the items of value that are exchanged in the contract. For a valid contract, each party must offer something of value. In the example above, the truck and the money exchanged constitute consideration. Consideration does not exist if one item was a gift, if the person was already legally obligated to the contract terms or if the action in question has already been completed.

Mutual Obligation

This simply means that both parties agree to the terms of the contract and perform the obligations therein. If one party does not perform, the contract is not valid. In the example above, if the neighbor already sold his truck to someone else or if you can’t come up with the money, no contract exists.

Capacity and Consent

Not everyone can legally enter a contract. A contract is not valid if one or more of the parties is younger than 18, is not mentally capable of consenting to a contract or was under the influence of drugs or alcohol when the contractual agreement was made. The contract is also invalid if a party agreed under coercion or duress.

Before entering a legal contract, confirm its validity with legal advice. For a consultation, contact the team of attorneys at American Legal Care.