signing a contract

The Value of a Contract

Beyond negotiating a number, it is necessary to understand the value of a contract. It is equally important to know what it means to sign a contract. Each party’s obligations are what makes a contract valid and enforceable. 

Before signing, it is important that you understand the three things a contract must have to be valid:

  1. There has to be an offer
  2. An acceptance of the offer
  3. An exchange of value between the parties. (Consideration)
A Contract

Getting Started with your contract

Let’s break this down so you really understand the value of a contract. The definition of an offer in contract law is a promise to do or refrain from doing something in exchange for something else. In simpler terms, an offer is a specific proposal to enter into an agreement with another. An example of an offer would be “Person A will pay Person B $10,000 to write 5 songs.” 

What is Acceptance in a contract?

The second element of a contract is acceptance. An acceptance can be given via verbal or written communication, but it can also be given via actions or performance, in certain circumstances. For example, if the offer is “Person A will pay Person B $10,000 to write 5 songs,” a person can accept by saying “Yes, I accept,” or by signing the agreement.  Now, if the offer states “Person A will pay Person B $10,000 to deliver 5 songs. This offer can be accepted via delivery,” by delivering the 5 songs the offer has been accepted. 

The Consideration: What is the exchange?

The third element is an exchange of value between the parties, this is often called consideration. A simpler way to see if the contract has consideration is to ask, “What is each party receiving from this agreement?” If this is not easily answered, then it is most likely the contract lacks this pivotal element.

The things or actions being exchanged must not be something that a party is obligated to do (such as pay their own taxes) or for something that has already been done (like getting dressed for the day).  The exchange does not have to include a monetary value. A common formality in contracts is putting an exchange of $10 when you want each party to fulfill their obligations in order to avoid any confusion or misunderstandings. It is imperative to always read the fine print of your contract as if it has these three elements it can be difficult to get out of it. 

There are a few other things that are important when entering into or reviewing a contract. It is very important to note that each party must be legally able to enter into a contract. This means they must be of age and capable of understanding the agreement they are getting into. 

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