11/20/2006 @ 2:46PM

What Makes A Contract Valid?





Does a Contract Have To Be in Writing?

In a few situations, a contract must also be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last more than one year. You’ll need to check your state’s laws to determine exactly which contracts must be in writing. Of course, it is wise to write out most business agreements, even if not legally required, because oral contracts can be difficult or impossible to prove.

Let’s look a bit more closely at the two elements necessary for a valid contract: agreement between the parties and exchange of things of value.

Agreement Between the Parties


Offer and Acceptance


Let’s say, for instance, you’re shopping around for a print shop to produce brochures for your business. One printer says (or faxes or e-mails) that he’ll print 5,000 two-color fliers for $200. This constitutes his offer.

If you tell the printer to go ahead with the job, you’ve accepted his offer. In the eyes of the law, when you tell the printer to go ahead, you create a contract, which means you’re liable for your side of the bargain (in this case, the payment of $200). But if you tell the printer you’re not sure and want to continue shopping around (or don’t even respond, for that matter), you clearly haven’t accepted the offer, and no agreement has been reached.


When Acceptance Occurs


How Long an Offer Stays Open




Revoking an Offer

Whoever makes an offer can revoke it as long as it hasn’t been accepted yet. This means if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer. Once the other party accepts, however, you’ll have a binding agreement. Revocation must happen before acceptance.


Offers With Expiration Dates

An offer with an expiration date is called an option, and it usually doesn’t come for free. Say, for instance, someone offers to sell you a forklift for $10,000, and you want to think the offer over without worrying that the seller will withdraw the offer or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time, say, 30 days. Often, however, the seller will ask you to pay for this 30-day option–which is understandable, since during the 30-day option period the seller can’t sell to anyone else.





Even though a contract is formed only if the accepting party agrees to all substantial terms of an offer, this doesn’t mean you can rely on inconsequential differences to void a contract later. For example, if you offer to buy 100 chicken sandwiches on 1-inch-thick sourdough bread, there is no contract if the other party replies that she will provide 100 emu filets on rye bread. But if she agrees to provide the chicken sandwiches on 1-inch-thick sourdough bread, a valid contract exists, and you can’t later refuse to pay if the bread turns out to be a hair thicker or thinner than 1 inch.

Exchange of Things of Value

In addition to both parties’ agreement to the terms, a contract isn’t valid unless both parties exchange something of value, in anticipation of the completion of the contract.

Consideration Defined


Gifts vs. Contracts

The main importance of requiring things of value to be exchanged is to differentiate a contract from a generous statement or a one-sided promise, neither of which are enforceable by law. If a friend offers you a gift without asking anything in return–for instance, such as offering to stop by and help you move a pile of rocks–the arrangement wouldn’t count as a contract because you didn’t give or promise your friend anything of value. If your friend never followed through with her gift, you would not be able to enforce her promise. However, if you promise your friend you’ll help her weed her vegetable garden on Sunday, in exchange for her helping you move rocks on Saturday, a contract exists.

Promises vs. Action


If, for instance, you leave your printer a voice-mail message saying you’ll pay an extra $100 if your brochures are cut and stapled when you pick them up, the printer can create a binding contract by actually doing the cutting and stapling. And once he does so, you can’t weasel out of the deal by claiming you changed your mind.

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