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What makes a contract valid
Business Blueprints

What Makes a Contract Valid?

Will Cannon

Last updated on February 28, 2024

A contract forms the foundation of most business agreements. Understanding what constitutes a legally binding contract is crucial for protecting your interests.

Contract Definition

A contract is simply an agreement between two or more competent parties to exchange something of value. The agreement outlines binding terms and conditions that the parties voluntarily accept. Valid contracts must contain key elements like mutual assent, consideration, capacity, and legality. Ensuring these elements are met makes a document a legally enforceable agreement in court if one party reneges on their obligations. Using e-signatures on contracts also helps guarantee validity.

Types of Contracts

Several common types of legally binding contracts are used in business agreements and transactions. The main categories include:

  • Express Contracts: An expressly stated, often written, agreement outlining all relevant terms, conditions, and details. These contracts document the exchanged promises and expectations.
  • Implied Contracts: An unwritten agreement where actions and conduct between parties indicate a contract exists. For example, receiving goods or services after placing an order can signify an implied contract.
  • Bilateral Contracts: Both parties exchange mutual promises tied to each other’s performance. For instance, an employment agreement outlining pay in return for work. Acceptance must be explicit.
  • Unilateral Contracts: One party makes an offer or promise, and the other accepts by completing the performance, like offering a reward for a lost pet. Once someone finds the pet, a contract exists.
  • Executory Contracts: A contract where one or both parties have yet to perform their obligations. Many business contracts fall under this until goods or services are delivered as promised.

These legal document examples illustrate a portion of the wide range of contracts you can enter into. The type of contract impacts the exact legal requirements and performance expectations. Certain types also offer more flexibility if modifications are needed. Understanding these distinctions is key to creating a sound, enforceable contract.

What Makes a Contract Valid? 5 Requirements of a Valid Contract

For any agreement to be considered an enforceable contract, it must meet certain criteria. While specific contract requirements can vary based on jurisdiction, there are general fundamentals that apply in most cases. These essential elements include:

The Offer + Terms

This forms the very foundation of a legally binding contract. One party proposes a clear and detailed offer to another party, fully outlining all the key terms, statements, and conditions that both sides would be willing to agree to and be bound by if the offer is accepted. This written or verbal offer demonstrates a willingness and intent by the offering party to enter into a valid contractual agreement.

The offer’s specifics should spell out proposed exchanges, obligations, expectations, responsibilities, and more that could arise under the contract for both parties involved. Ambiguities in scope or expectations can undermine claims if breaches occur.

Acceptance of Offer

The other party must actively demonstrate acceptance of the original offer and terms clearly without changes. Contract negotiation adjustments before acceptance may invalidate an agreement. Once unaltered terms are mutually agreed upon, a contract may be valid. Statements like legal signatures can show acceptance.

Party Capacity

All parties entering into and signing off on a legal contract must fully have the complete legal capacity, sound judgment, and ability to comprehend key terms recognized under the governing contract law. Those persons deemed unable or lacking in capacity, like legal minors and children, cannot legally form fully binding and enforceable contracts. Additionally, persons who lack a sound mind or are judged to be mentally incapacitated, heavily under the influence of intoxicating substances, or otherwise lacking the full cognitive ability to understand contract terms may also not have the ability to enter into contracts.

Having proven legal power, authority, and capacity to enter a contract willfully are key threshold issues around whether a legal contract exists or could be voided. If signatories lack the full ability to voluntarily comprehend agreement statements, provide consent, or appreciate consequences, the enforceability of the entire contract is undermined and open to future dispute in most jurisdictions.


There must be some form of mutually agreed upon exchange, transaction, or trade of something that holds legitimate tangible or intangible value, worth, or financial cost. This bargained-for legal consideration can specifically take the shape of goods, services rendered, money and monetary payments, binding promises tied to something of value, acts or forbearances, releases of liability, transfers of recognizable property rights or assets, or any combination of other elements that the law and legal precedents deem adequate forms of contract consideration in exchange for the obligations accepted under the agreement.

There essentially needs to be legally sufficient value in moving two ways from one party to another for valid consideration supporting an enforceable contract to exist. Suppose the exchange appears so lopsided that no party would rationally accept it absent fraud or coercion. In that case, courts may deem inadequacy of consideration present—undermining the bargained-for validity and mutual understanding needed to uphold claims if a breach of contract is alleged.

Clear Intent

The parties must demonstrate a willingness to enter into a binding agreement through words or actions. There should be reasonable clarity that the agreement is serious, not a joke or exaggeration. Ambiguities around intent can make contracts contestable.

Ensuring these five conditions are fully met protects parties and increases the chances of enforcing a breached contract. Paying attention to detail around these requirements results in secure, binding agreements.

How Long is a Contract Valid For?

The length of time a contract remains legally valid and enforceable depends on several factors. Many written contracts explicitly state an expiration date or term length, specifying when the agreements end. However, some contracts contain no defined duration period.

Generally speaking, both an oral and written contract are valid from the moment acceptance takes place. The agreements remain actively binding as long as both parties have not performed the contracted obligations entirely. Once all parties complete their side of the bargain laid out in the contract, it terminates unless stipulated otherwise.

However, there are exceptions. Some long-term or open-ended agreements can leave room for ongoing performance over months or years. Option agreements allowing one party to take specific actions also endure for predefined periods. Changes in law, company mergers, or bankruptcy can also prompt contracts to expire sooner.

Additionally, legally required elements like maintaining capacity must continually be met for contracts to remain enforceable. Status changes or material shifts in original terms also impact validity periods. Periodically reviewing contracts helps ensure they stay binding as initially intended if still active. Amending the expiration date as needed also keeps protection in place.

Is a Valid Contract Legally Binding?

A valid, enforceable contract that meets all essential legal elements is legally binding. This means that once entered, the contractual terms, statements, and promises carry the weight of the law.

If one or more parties fail to fulfill their agreed-upon obligations or breach material terms, the contract grants the other party specific legal rights. These include the ability to sue for monetary damages related to the breach’s losses or seek equitable remedies like an injunction forcing contract compliance.

Basically, a valid and enforceable contract provides concrete evidence that both parties mutually understood and voluntarily entered the exchange agreement knowingly. This demonstrates the shared intent to create absolute legal obligations owed to one another. If disputes arise, the binding contract allows the non-breaching party to pursue legal action through the court system.

Judges can then assess if a material breach occurred based on the contract language and impose different civil remedies as needed. Having a solid written contract outlining terms also provides more evident proof of what was promised versus just an oral exchange. So, valid contracts carry the full strength of enforceability under governing laws. This gives the assurances needed to engage in significant transactions or partnerships confidently.

Ensuring Your Contract is Valid

There are a few key steps you can take to help guarantee your legally binding contract is effective: 

  • Carefully assess if all required elements like offer, acceptance, capacity, consideration, and intent are present. Ensure nothing is missing or vague. Define all aspects in detail.
  • Consider having an attorney review the agreement to spot potential issues or need for greater specifics based on the nature of the transaction. They can tailor language to governing laws.
  • Where possible, use a written document over only verbal agreements to better demonstrate the terms and promises made. Include carefully worded sections covering core provisions as well as dispute resolution processes.
  • Detail the exact consideration being exchanged by each party, like payment amounts, products/services, delivery timelines, IP rights transfers, etc. Ambiguity can undermine contracts.
  • Lastly, use e-signature solutions like Signaturely to capture binding affirmations from all parties securely. This validates understanding and agreement to the contract. Maintaining detailed records of business documents also proves the contract was willfully formed should disputes arise later.

Following best practices around contract formation protects you by ensuring agreements hold weight. Don’t hesitate to consult legal help for more complex agreements.

FAQs About What Makes a Contract Valid

Understanding the key elements enabling contract enforceability is crucial- especially in learning how to sign a contract online. Some common questions include:

How can you make sure a contract is valid?

Review that all required components like offer, acceptance, capacity, legality, consideration, and intent are documented without ambiguity. Consult an attorney to strengthen protection.

What makes a contract invalid?

Missing or vague contract elements, lack of mutual understanding, lack of capacity, illegal/unethical terms, unconscionability, coercion, or misrepresentation could undermine validity.

Who cannot enter into a contract?

Those with diminished legal capacity, like minors, mentally incompetent persons, intoxicated ones, or others lacking complete understanding, may potentially sign voidable contracts open to dispute later.

What You Need to Remember About Valid Contracts

Ensuring binding agreements requires properly documenting all vital components like offer and acceptance, legal objectives, mutual consideration, and competent signatories demonstrating explicit consent and intent. Signature confirmations further strengthen legal recourse if breached.

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