Contracts are made up of intricate parts, and often written in confusing legal language. How do you know you have a valid contract? How do you know you are protected? It is far cheaper to have a contract lawyer review or write the document than it is to go to court and litigate a dispute.
Contract law is complicated. Each state has its own laws and court decisions that shape how contracts are written and enforced. Some types of contracts, such as real estate contracts, have to follow special rules. There are also any exceptions to the rules and laws that govern contracts. But, there are a few key concepts of contract law that form the basis of most business contracts.
These key concepts include; the components of a contract, the difference between express and implied contracts, what makes a valid contract.
Components of a Valid Contract
For an agreement to meet the legal definition of a contract it must have these five components. There must be an offer, an acceptance and consideration. All parties must have the capacity to enter into a contract. And the contract must be for a lawful purpose.
The offer means that someone has proposed a deal. The offer could be as simple as I will sell you my truck for $5,000 or it could be something more complex like an offer to form a strategic partnership to explore a mineral rights claim. The first step in creating a valid legal contract is making an offer.
The second component is acceptance. If you offer to sell your truck for $5,000 and the offer is rejected there is no contract. If instead of rejecting your offer, the potential buyer makes a counter offer of buying the truck for $4,500 there is still not a valid contract unless you accept the counter offer.
The third component in a valid contract is consideration. Consideration simply means that something of value has to change hands. In the example of the truck sale, the truck and $5,000 both have value. There is valid consideration. If give our truck to someone, there is no contract. You have just made a gift. Likewise, if two people agree to meet at the park there is no contract. There is no consideration. Nothing of value has changed hands between the two sides.
The fourth component of a valid contract is agreement. The two sides have to agree on what the deal actually was. They have to have a meeting of the minds. If you think you are buying the truck for $4,500 and I think I am selling the truck for $5,000, there is not a contract. We have not agreed on the underlying terms of the deal.The last component of a valid contract is that it has to be enforceable by law.
There are several reasons a contract may not be enforceable by law:
- The underlying premise of the deal may be illegal—you cannot have a valid contract to sell illegal drugs
- One side may not be capable on consenting to the deal—you cannot have a valid contract with a minor
- The law may require the particular contract to be in writing and the two sides only had an oral agreement—any real estate contracts need to be in writing to be legally enforceable
These different components of a contract are the foundation of all of contract law. If you want to argue a contract was not valid you need to prove which of these components or elements are missing from the deal. Having a written business contract is the easiest way to make sure you have a deal that is not only technically enforceable, but also practically enforceable. A written contract makes it much easier to prove the deal contained a valid offer, acceptance, consideration, agreement, and is enforceable by law.
Express and Implied Contracts
There are two major types of contracts, expressed contracts and implied contracts.
You have an express contract when an offer and acceptance are made expressly in words. Express contracts can be oral or written. When most people think of contracts they are thinking of express contracts. One side proposes a deal and the other side agrees. Sometimes there is a period of negotiation and counteroffers first. But, if there is a clear statement of an offer and a clear statement of an acceptance the contract is an express contract.
Implied contracts are usually not specifically written down, although there may be some written evidence of an implied contract. An implied contract is made when the offer and acceptance are not made through words, but are made through actions or performance. If you take your car to a mechanic and the mechanic begins to start fixing your car, and you know the mechanic charges money for the service of fixing your car, you have entered into an implied contract. The mechanic does not have to say I will fix your car for a set fee and you do not have to say you accept the mechanic’s offer. Both the offer and the acceptance are implied through our actions and the actions of the mechanic.
Implied contracts can also happen as part of the regular course of business. If a business sends out a standard shipment to a customer each month and the customer pays the same amount, and there is no conversation or paperwork, there is still an implied contract. The customer would not be able to claim they thought the shipment in the seventh month was a gift because there was no contract. The parties would be bound by the terms of the implied contract. The customer would have to pay for the goods received.
How Do You Know if You Have a Valid Contract?
The point of a contract is to have a legally enforceable agreement. The knowledge that a court is ready to enforce the provisions of a contract or order damages for the breach of a contract is what makes contracts valuable and is what allows business between strangers to happen so freely in our society. But, the system only works for contracts that are legally valid.
The major reasons a contract would be found invalid are:
- Lack of one of the core components of a contract
- The agreement had an illegal purpose
- One of the sides was not able to consent
- One of the sides was coerced into consenting to the deal
- The law required the contract to be in a particular form
The easiest way to make sure you have a valid contract is involve an experienced Florida contract lawyer as early in the process as possible. A contract lawyer will be able to make sure all of the components of a valid contract are present and the contract is in the right form. For example, real estate contracts not only have to be in writing, but they also have to meet other legal requirements to be enforceable. A lawyer will be able to make sure any agreement is in compliance with the state statutes and case law.
A contract lawyer can also help make sure that there are no issues of illegal purpose, lack of ability to consent, or presence of coercion in the contract process. Most of the time the real issue will not be the validity of the contract, but the wisdom of the different contractual provisions. You will want to make sure that your interests are protected in the event the other side breaches the contract or accuses you of breaching the contract.