A contract is a legally binding agreement between two or more parties. If you own a business, you likely enter into contracts all the time — and it’s important to understand the mechanics of these important documents. To be enforceable by a court, a contract must meet several legal requirements. Understanding the requirements for a legally binding contract can help to save you time and prevent unintended consequences.
What are the Requirements for a Binding Contract?
The requirements to make a valid contract can be complex — and several elements must be satisfied. Critically, the parties signing the contractual agreement must have the legal capacity to make a contract. Capacity means the parties must be of legal age, sound mind, and have the mental capacity to understand the agreement they are entering into.
In addition to capacity, three primary elements must be met to have a binding contract, including:
Offer
For a contract to be valid, there must be a clear and definite offer to contract. An offer is a statement of terms under which the offeror agrees to be bound. The offeror promises to do something or not do something in return for a promise made by the offeree.
Acceptance
The acceptance of an offer can be just as nuanced as the offer itself. To accept an offer, the offeree must clearly communicate acceptance of the terms of the offer and be willing to be bound. Acceptance may be verbal or in writing, unless the offer specifies a specific form of acceptance. If an offer’s terms are not accepted exactly as the terms made, the nonconfirming acceptance becomes a counteroffer. Once the offer has been accepted, it cannot be revoked — doing so would be a breach of contract.
Consideration
Consideration is a “bargained for exchange” for the execution of the contract. Consideration usually comes in the form of monetary payment, but it need not be. Consideration can be anything of value and may also be goods, services, or a promise to do something later.
What is a Counteroffer?
Parties to a contract are not obligated until one accepts the other’s offer. Bargaining or negotiating can often result in a counteroffer. This is a change to the original proposal that voids the previous offer and starts a new negotiation round. Once a counteroffer is made, the original offeror may accept, decline, or make another counteroffer. The law puts no limits to the number of counteroffers that may be made during negotiations.
How Long Should a Contract Offer Stay Open?
Offers are rarely immediately accepted. Further negotiations may be required before parties sign a contract — and depending on the complexity of the contract, negotiations may be long. Every term in a contract can be negotiated, including the price, the time frame for performance, the obligations of the parties, and how the business relationship will operate. Unless the offer has a specific deadline for acceptance, it will remain open for a reasonable amount of time.
Contact an Experienced New York Business Attorney
Contracts can be complicated — and if you are a party to a contract, it’s vital to have the guidance of an experienced business attorney. Offering reliable representation to business owners and entrepreneurs, Brinen & Associates advises clients for a wide range of contractual agreements, including those involving drafting, negotiating, and litigating contracts. Call (212) 330-8151 or send us a message to learn more about how we can assist you.