Do You Have A Binding Contract? 4 Elements That Create One
Although the best practice in business is to have a written contract for every transaction, this isn't always what actually happens. The absence of a written contract, though, doesn't necessarily mean that you don't have an enforceable contract by legal standards. Whatever form it takes, a contract just needs to have a few key components to be binding. Here are four of the most important.
The offer is made by one party who initiates the transaction. They clearly communicate what they agree to provide the other. The offer must be unambiguous and measurable. You might offer to trade your old forklift to a repair company in return for fixing your new one. However, if the repair shop counters with another offer, your original one is void.
The second party must accept the offer. When there is no written document, acceptance can be either explicit or implicit. Explicit acceptance of your forklift offer could be two individuals shaking hands and saying yes to the deal. However, implicit acceptance can be more subtle. If the repair shop then begins work on its part of the deal, they may have demonstrated implied acceptance of your offer.
Consideration is a legal term that has nothing to do with kindness or tact. It simply means that each party must get something of value in return for their agreement to the contract. In the forklift example above, your consideration is the repair and the shop's is the old forklift. If there is no consideration, the offer is deemed a gift and not binding. However, consideration also doesn't need to be large to be enforceable.
Finally, both parties must show that they are in agreement about the terms above. This is known as mutuality, or a meeting of the minds. With a written contract, of course, this is done by signing the document. However, mutuality is often shown in unwritten contracts through words or actions. If you both begin working on goods you agreed to trade, you have expressed that meeting of the minds.
Where to Learn More
Does your agreement with another party contain these key elements? Whether they are part of a written document or just expressed in words and whether they are explicitly stated or implicitly implied, you may have a binding contract you can pursue in court. Find out more by meeting with a business litigation attorney in your state today.