A contract is a legal agreement or promise that exists between two parties. It can either be in written or oral form, and it is usually drafted to enable courts to pass judgment on specific issues. Whether you are a startup or established business, having a legal contract is crucial before entering into any business transaction.
Furthermore, a legal contract template includes five essential elements, which are: offer, acceptance, consideration, legality, and capacity. If any of these elements are absent, then the contract will be invalid in a court of law. Read on to learn more about the essential elements of a legally binding contract.
An offer is the statement of terms and conditions that the two parties involved in an agreement or contract agree to be bound by. It describes the offeree’s willingness to accept and be bound by the terms stated by the offeror. An offer could be a promise made by one party to act or not act in a particular manner in exchange for a commitment from the other party to do the same.
Offers become legally binding when they include certain essential factors. However, what is a crucial factor varies from contract to contract depending on its peculiar circumstances.
After an offer is made, there has to be an acceptance from the other party. Acceptance can only take place when both parties understand the terms and conditions offered in a contract. It can be described as proof that both the offeror and offeree abide by the contract’s terms and conditions. It is signified by the offeree agreeing to every item within the offer without making any change whatsoever.
This element describes the exchange of one thing for another between the parties involved in a contract agreement. For a contract to be legally valid, there has to be the inclusion of a consideration. Each party is expected to provide something of value to the other party to prompt them to agree. Note that this valued item does not have to be money; it can be anything from taking specific actions to providing an item.
Another requirement of a valid contract is legality. Legality describes when the terms and conditions of a contract align with the law. If the subject matter of the contract isn’t legal, then the contract is invalid. This is because contracts can only be created for legal reasons.
Capacity refers to the legal capacity that parties involved in a contract have to consent to that contract. It can be regarded as the minimum requirement that must be met before a person can be involved in contract agreements. For instance, individuals below a certain age, mentally disabled people, and intoxicated people are not capable of acceding to a contract.
In conclusion, elements of a legally binding contract include offer, acceptance, consideration, legality, and capacity. If all of these elements are catered to, then a contract or agreement is considered valid and can hold water in court. However, if they are not, then such contracts will be rendered invalid before a court of law.