A contract is a legally binding agreement between two or more competent parties. The contract can be written, oral, implied, or expressed. A “party” in legal terms can be a person or company.
What Makes a Contract Legal?
To form a legal contract, the agreement must have two elements:
- Mutual acceptance
What Is Mutual Acceptance?
Mutual acceptance, which refers to a meeting of the minds, is an offer and acceptance. For a legal contract to exist, a party makes an offer to another party.
Acceptance is an unequivocal approval of the offer. For example, Rick tells Gabby, “Yes, I’ll pay you $3,000 for the car.” He has accepted her offer.
Sometimes offer and acceptance isn’t as clear cut. The party receiving the offer, called an offeree, may reject the offer. The offeror, the party making the offer rescind, or take back the offer.
What Is Consideration?
Consideration is the bargained for exchange of promises. To be a legal contract, something of value must be exchanged between the parties such as:
In the prior example, consideration is Gabby receiving $3,000 in exchange for giving the car to Rick. Let’s say Gabby made an offer to Rick. He could have her car. Rick accepts her “offer.” They write a contract. The contract isn’t legal. Rick didn’t have to pay anything to receive the car.
When Is a Contract with Mutual Assent and Consideration Not Legal?
Any oral contract that falls into the Statute of Frauds isn’t legal until it’s in writing. Statute of Frauds vary by state. However, when an oral contract isn’t legal if its elements include:
- A sale of goods more than $500
- The transfer or sale of land
- Agreement which can’t be performed in one year
- The promise to pay someone’s debt
- Agreement that continues to be valid after one party’s death
Yes, contracts are complicated. Contact a business attorney to understand more about your rights in a legal contract.