Making deals and reaching agreements are things every business owner should have experience doing. After all, these negotiations are often the foundation upon which businesses and relationships are built.
However, it’s typically not enough to know how to strike a deal. You should also know how to make that deal legally binding and enforceable, because contract disputes are among the more common issues business owners face. This means understanding the basics of what makes a contract a contract.
Elements of a contract
There are three basic elements of a valid contract: an offer, an acceptance, and consideration.
- An Offer is the promise to do something or not to do something.
- An Acceptance occurs when the other party agrees to the terms offered. This can happen by verbally agreeing, signing an agreement, or completing an action, like making a down payment.
- Consideration refers to something of value given in exchange for the promise. This could include an item in exchange for money or a job in exchange for agreeing to comply with confidentiality clauses. If both sides do not receive something of value from the agreement, it may not be an enforceable contract. Whether something is of “value,” is subjective and unique to the contract.
Does a contract have to be in writing?
No. Not all contracts have to be in writing, but some certainly do. Those that must be in writing include contracts for sales over $500 and agreements that cannot be fulfilled within a year.
That said, having a contract in writing is generally a wise decision. Memorializing an agreement in writing can ensure the both parties understand the terms, and can mitigate the chance of one party trying to later change the terms or expectations of the original contract.
It is also important to note that certain people cannot legally enter into a contract, including minors and people lacking legal capacity. Furthermore, parties must enter contracts voluntarily; coercion or fraud can make a contract unenforceable.
Addressing specific cases
It is crucial to note that contract laws and requirements in Minnesota can be complicated and nuanced.
The intention of this post is to provide general information. Any business owner with specific questions regarding elements of a contract or whether an existing agreement is binding would be wise to consult an experienced attorney.