Contracts need to be executed properly in order to be legally binding. Below you can find information about the key elements that make up a valid agreement, when a contract is considered void or reasons it can become voidable, and the steps you can take to make sure your contract is carried out correctly.
The Basic Elements of a Valid Contract
A valid contract is enforceable under state and federal laws, and contains all the required elements.
Offer and Acceptance
The two basic elements of a valid contract are “offer” and “acceptance”.
One party makes an offer (outlines what is provided), and the other party accepts the terms of the offer (usually in writing). Acceptance can take time, whereby the negotiation process takes place until an agreement is reached.
Legal Object and Capacity of Parties
The subject matter of the agreement must be legal and both parties must:
- Freely agree to the terms
- Be over the age of consent
- Be able to mentally carry out the agreement
A valid contract must have the element of consideration (a price or value) exchanged in the agreement. Consideration is not limited to money, and can include a right, interest, or benefit. Both parties must benefit in some form.
For instance, when one party sells their vehicle to another party, the seller receives money, and in exchange, the buyer receives the vehicle.
Written and Verbal
There are oral agreements that can be enforced, but some contracts are not valid unless they are in writing. Usually those that involve a large amount of consideration or debts, real property, or contracts that won’t be carried out for quite some time (e.g. a Last Will and Testament), need to be in written form.
In summary, a contract is valid if the agreement is consensual, legal, backed up with a promise of consideration, and it is executed by two adult parties who are in sound mind—both of which intend to hold up their end of the bargain.
What is the Difference Between “Void” and “Voidable” Contracts?
When a contract is void, it is not valid. It can never be enforced under state or federal laws. A void contract is null from the moment it was created and neither party is bound by the terms. Think of it as one that a court would never recognize or enforce because there are missing elements.
A contract can be void for the following reasons:
- The terms of the agreement are illegal or against public policy (unlawful consideration or object)
- A party was not of sound mind while signing the agreement
- A party was under the age of consent
- The terms are impossible
- The contract restricts the rights of a party
Example: If an individual is hired by an employer and the terms of the employment agreement list illegal job responsibilities, this contract is void because it is against the law and does not adhere to valid contract elements.
Alternatively, a voidable contract is valid and may be enforceable in certain situations if both parties agree to move forward. One party is bound to the terms of the contract, whereas the other party can oppose the contract for legal reasons if they so choose. Therefore if the unbound party rejects the contract, it becomes voidable.
A contract can become voidable under the following circumstances:
- A party was coerced or threatened into signing the agreement
- A party was under undue influence (one party is able to dominate the will of another)
- A party is not of sound mind or mentally competent (minor or mentally ill)
- The terms of the contract were breached
- Mutual mistakes on behalf of both parties
- The contract is fraudulent (omitting or falsifying facts or information, or the intention to not carry out the promise in the contract)
- Misrepresentation occurs (a false statement of fact)
Example: A minor signs a lease agreement with a landlord.
Tips for Executing a Contract Correctly
Read it fully
When entering into an agreement with someone, it’s important to read through the document completely. Documents can be lengthy and may include several complex clauses. By taking the time to review its contents, you have proactively avoided missing any important information.
Clearly state the offer
The terms of the contract, including what is being offered, must be clear and specific. In the case of selling a vehicle, there must be a detailed description of the vehicle, including the make, model, year, etc.
Understand and clarify
Make the effort to fully understand what you are agreeing to and ask questions about any phrasing, definitions, or unclear terms.
Write it down
While oral contracts are enforceable in some locations, written documents are the only sure way to prove that an agreement was made. Contracts serve as guidelines for actions, such as payment or services, and also act as proof of agreement if any disputes arise later.
Pay attention to acceptance details
If there is an acceptance date on the contract, make sure to accept or deny the offer before its expiration. As the one who created the offer, you may revoke it if the other party has not yet accepted, only if you have not included an expiration date in the contract.
Know who you are dealing with
Whenever you do business with another individual, whether it’s leasing a property, entering into a partnership, or simply buying/selling an item, confirm the other party’s identity before signing anything to make sure they are who they say they are.
Think Before You Sign
Knowing the differences between a valid, void, and voidable contract can help you to better navigate your legal future and protect yourself before entering into any type of agreement.
Many of the reasons contracts are void or voidable are due to the illegal nature of the document, being taken advantage of by another party, or being presented with false information. Avoid having any involvement with parties you do not trust. It could save you or your family from future distress, legal fees, or agreeing to something you will later regret.
If you suspect that you entered a voidable contract, consult with a contract lawyer for guidance.
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