Besides the benefits of a contract, it is necessary to understand the fundamental elements that need to exist in a contract in order for it to be valid and enforceable.
Before signing, it is important to keep these three key elements in mind:
- There must to be an offer
- There must be an acceptance of the offer
- There must be an exchange of value between the parties (Consideration)
Getting Started with your contract
Let’s break this down. The definition of an offer in contract law is a statement of terms to which the person making the offer is prepared to be contractually bound by and such terms must indicate that an action is required for acceptance. In simpler terms, a promise to do or refrain from doing something in exchange for something else. 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 must be unconditional and 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 what is 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 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 a nominal exchange of money, such as $10, in order to avoid any confusion or misunderstandings. It is imperative to always read the fine print of your contract because if these three elements are present, 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 take in consideration that each party must be legally able to enter into a contract. Meaning they must have the capacity to do so. For these reasons and others it is often important to consult with an attorney regarding these matters.
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