What Are the Essential Elements of a Contract?

How do Contracts and Agreements Differ?

On any given day, a business owner (and their legal counsel) may be reviewing and discussing various contracts and agreements. The words ‘contract’ and ‘agreement’ are often used interchangeably, but they are not, in fact, the same.

The legal definition of an agreement is that it exists when there is a mutual understanding between all parties of their rights and responsibilities with regard to a business arrangement. The contract is the agreement between the parties involved, which creates obligations that are legally binding and enforceable. 

Therefore, a contract is a type of agreement. While contracts are typically made in writing, an oral contract can be enforced if all of the elements of a contract exist and can be proven. However, this can be difficult and is not advisable. Furthermore, certain business dealings require written contracts in order to be enforceable.

When Is a Written Contract Necessary?

There are several instances when Florida’s Statute of Frauds dictates that a contract exists in writing. These include, but are not limited to:

• The sale of any land or real estate

• Real estate leases that exceed one year

• Agreements in which one party accepts the debt of another

• Satisfaction of a debt for less than the total amount that is due

• A subscription to a newspaper or other periodical service

• A contract for a sale of goods that exceeds $5,000

• Prenuptial agreements and other promises made in consideration of marriage

What Are the Essential Elements of a Contract?

In order for a contract to be deemed valid and enforceable by a court of law, there are six elements that are required and essential. They are as follows:

Contractual Offer

The basis of any valid contract is the offer at hand. This is one party – the offeror’s – tentative promise to do something – or refrain from doing something – in exchange for the offeree doing or refraining from doing something. Essentially, the offeror is stating terms to which they are willing to be bound in exchange for the thing they want from the other person.

Acceptance

The person being offered a contract (the offeree) will decide to either accept or reject the offer being made in the contract. Should they choose to accept it, they will be legally obligated to abide by its terms and carry out their obligations as outlined in the document. Acceptance is valid when it is done without any undue influence, there is intent to enter into the contract, and acceptance is expressed through words, deeds, or performance.

Consideration

Consideration essentially answers the question of why someone is entering into the contractual agreement and what is being exchanged. The benefit that each party gets, or expects to get, out of the deal. For a contract to have a valid basis, each party must make a change in their position. In other words, they are agreeing to do something they are not legally obligated to do, or they are making a commitment to not do something they have a legal right to do. 

Legality

The terms of the contract must be compliant with contract law and are subject to any laws that are jurisdiction-specific to the location where parties will carry out their obligations. The purpose of the contract must also be legal in its scope for the contract to be valid. A contract that contains obligations that include illegal activities would not be valid and would instead be deemed null and void.

Capacity

Only a person who has the contractual and legal capacity to sign a contract can enter into a legally binding agreement. To be considered legally capable and of sound mind, the individual signing the document cannot be a minor, mentally disabled, or intoxicated at the time of signing. 

A contract will be deemed voidable from inception if a person who enters into the agreement does not have the legal capacity to do so.

Mutuality

Also called mutual assent or a meeting of the minds, mutuality is a confirmation that both parties clearly understand the terms outlined in the contract and agree to them. This is by design to counter any concerns about misrepresentation. 

What Is the Difference Between Valid, Void, and Voidable Contracts?

Contracts can be classified as being either valid, void, or voidable, depending on a number of factors. A valid contract contains all the essential elements of a contract, as outlined above, to meet the legal standards and requirements of contract law.

A void contract is one that cannot be legally enforced. In all likelihood, it is missing one of the six essential elements, and it, therefore, cannot be deemed a contract at all. This could be because one of the parties lacked the capacity to sign because the obligations were illegal, or any other number of flaws. This is one of the many reasons it is wise to consult an experienced business attorney before drafting or entering into any legal contract.

A voidable contract is one that can be canceled (voided) or altered due to legal reasons if it is discovered to have defects. Simply put, a contract is voidable when one of the parties would not have entered into the contract had they been aware of certain facts. For example, if one of the parties was a minor at the time of signing or if the offeror misrepresented the contractual offer. At that point, the offeree may choose to reject the contract. However, if they choose not to reject and to move forward, the contract remains valid and enforceable. 

Do I Need a Lawyer to Draft a Contract?

While it’s possible to create a contract on your own, it is not advisable. Only a practiced attorney with experience in contract law will be able to advise you on your rights and obligations in the event of a breach of contract and can ensure that your contract is properly drafted to be considered valid and enforceable. In addition, we recommend that you have legal counsel review any contracts offered to you before entering into a legal agreement to make sure you fully understand it and that your rights are protected. 

The Easler Law team is well-versed in the ins and outs of contracts and agreements, and we are available to assist you in crafting, drafting, reviewing, and – if necessary – enforcing any contracts needed for you to successfully operate your business. Call today to set up a consultation for any of your contract needs.