If you’re an adult, you’ve probably signed at least one contract during your lifetime. But what is a contract? People sign them all the time, but contract law can be surprisingly complex, and there are attorneys and legal firms that specialize in this branch of legal services. For almost anyone, it’s a good idea to have a basic understanding of what a contract is, how it is legally defined, and what renders a contract valid or invalid.
Defining the Word “Contract”
Simply put, a “contract” is a legally binding agreement between two parties. A contract is legally valid if it contains all of the following elements:
An offer and acceptance;
An intention to create binding relations between the two parties;
Consideration to be paid for a promise made;
Legal capacity of both parties to act regarding the contract;
The genuine consent of both parties;
A mutual agreement that is legal.
If a written or verbal agreement lacks any one of these features, it is not a legally binding and valid contract.
Other Features of Contracts
In addition to the key features listed above, contracts need three other things: a clearly defined subject, a valid cause to enter the contract, and the competency of all parties involved in it.
. A contract needs concrete, definite terms spelling out all of the details of a clearly defined offer. These specific details are the contract’s “subject.” As an example, if you’re purchasing a used car from a dealership, the subject of the contract is the sales agreement between you( the buyer) and the dealership. It will include relevant details like the price of the car, warranty information, and details about the transfer of title or ownership.
Consideration. There must always be a valid cause for each involved party to enter into a contract. Consideration for a contract can be the reason, the motive, the price, or any other objective that the contract accomplishes or establishes. In some cases, such as a contract you’d sign to buy a used car, or a contract you’d sign with a company to do freelance work as a 1099 contractor, the consideration is money. However, a contract may also concern other things, such as acceptance of liability or a promise not to do something. In a nondisclosure agreement (NDA), the consideration is preventing the signer from disclosing information about something.
Competency. Everyone involved in a contract must be competent, meaning they are capable of making an informed and willful decision to involve themselves in the contract. A severely mentally disabled person is not considered competent, and cannot legally enter into a contract. If a contract is signed by a minor, it usually cannot be enforced until they reach the age of majority (18), as minors are not considered competent.
The Format of a Contract: Written or Oral, Implied or Express
Contracts can be considered oral or written. They may also be either implied or express.
Oral contracts are essentially a verbal agreement made during conversation. While this may be legally binding in some cases, contracts are almost always created and signed in written form, in a tangible document.
Contracts are also divided into implied contracts and express contracts. In an implied contract, specific details are assumed to be agreed upon by both parties. These are not particularly common, and you can imagine the problems that could be inherent in them. Express contracts have a subject that is clearly stated, along with any relevant details. For example, if you’re renting a car, you will be signing an express written contract. You are agreeing to pay a certain amount in exchange for the car, either all at once or over a clearly defined period of time. You are also agreeing to other conditions, such as fees if the car is returned late or if it is damaged while you’re renting it.
Express, written contracts are generally required for things like the sale or transfer of real estate, the sale of goods and services worth over $500, or agreements regarding services that extend over a period exceeding one year -- for example, a three-year NDA contract or a long-term maintenance plan for your home.
Should I Consult with An Attorney Before I Sign a Contract?
If possible, it’s always a good idea to consult with your attorney before signing any contract. If you’re signing any business contract, you should have a lawyer review it before you sign. He or she will go over all the contract’s clauses, helping you ensure that the contract is legal and works in your favor. They can also ensure that any basic boilerplate in the contract is in accordance with local and state laws in Colorado.