Requirements for a Valid Contract

Most modern companies handle their partnerships, employment, licensing sales, and more with contractual agreements but it is crucial to understand all the required elements of a contract to protect your business and mitigate legal liability. Moreover, it makes agreements between parties legally binding. But to be enforceable, it must meet the essential elements of a contract.

The essential elements of a valid contract include:
(1) Clearly identified parties: contracting party is an individual or company who enters legal agreement with another and the contract must contain their identified full legal name, register office address, country of practice of county and state of business or domicile, current addresses, and trading name.

(2) Offer: a promise to do or not do something in exchange for something else. It’s basically an attempt to form an agreement with another party and is only one-sided. This generally includes details of the terms and conditions but will not be valid if its ambiguous, fraudulent, lacks consideration, or illegal. Types of offers can include, but not limited to specific offers, counteroffers, cross offers, standing offers, or implied offers.

(3) Acceptance: after the offer, the offeree can either accept or reject the offer.

A valid acceptance must:
-Agree to all of the contract’s terms without any conditions or changes.
-Only be made by the recipient of the offer.
-Be conscious. A party cannot unknowingly accept an offer.
-Be communicated clearly to the offerer.
-Occur within a prescribed time frame, or a reasonable amount of time.
-Must have disclosure of anything that would otherwise stop the offer from being accepted (such as a fraudulent or illegal matter or even unpaid debts).

(4) Consideration: the exchange of “something” of value such as services, property, tangibles, or even protection against something or someone. Specially, if neither side is exchanging money, the parties must ensure that the court would consider their consideration as valuable.

(5) Meeting of the minds: mutuality of obligation or “consensus ad idem” is when both parties accept the offered obligations without any ambiguity.

For this, a contract requires:
-A consideration to be exchanged between the parties
-An offer
-An acceptance of the offer
-All terms and conditions to be accepted

(6) Capacity: when entering a contract, both parties must have the total capacity or legal ability to enter into an agreement to be considered valid and enforceable. Total capacity is not present if the party is *under 18, *has no mental capability of making decisions, *under the influence, *coerced. If a contract is breached due to incapacity, the breaching party may be deemed not liable if they can defend themselves.

Valid defenses include:
-Repudiation, where one side will not fulfill their obligations in cases of abandonment, renouncement, and contractual refusal
-Revocation, where one side rescinds an offer before it’s accepted
-Lack of capacity that shows the party entering the contract is not permitted to do so.

(7) In Writing: legal document that records the execution of the agreement and ensures legal enforceability of the parties legal rights.

Execution of a written instrument requires the deal to be:
-In writing on anything that is easily transferable and somewhat permanent.
-Signed by the maker anywhere on the instrument.
-A definite order or promise to pay.
-Unconditional.
-Payable in money on demand or at a definite time to order or bearer.

(8) Dispute Resolution: follows a precise process for the parties to follow in case of any dispute and saves court costs.

A standard dispute resolution clause typically contains the following:
-How the parties initiate a conversation about the dispute (usually written).
-How the parties start the resolution process and a timeframe to solve the disagreement before arbitration.
-Hiring a mediator if the previous attempt fails.
-If arbitration is necessary, what is the jurisdiction that will hear the proceedings, and who will cover the costs of litigation.