Contracts are legal agreements between two or more parties. But just because something is called a contract doesn’t mean it’s legally binding, nor does it mean that all parties involved are equally protected.

All contracts must have several essential elements to be enforced in court. Contracts may be missing a few elements and still be legally enforceable, but you’ll still want them in there to be safe.

Here are 6 things you absolutely need to have in your contracts.

1. Capacity

Contractual capacity is an individual’s ability to enter into an enforceable contract. Just because someone can sign a document doesn’t make it legal.

There are a few classes of people who may not be considered legally capable of entering a contract, including minors, people with mental disabilities, and intoxicated people.

If a person without contractual capacity enters an agreement, it becomes voidable, meaning that that party can end the contract at any time.

2. The Offer

The offer is the statement of terms and conditions to which the person making the offer is bound. This clearly expresses the willingness to abide by the terms of the contract, which are binding as soon as the other party accepts.

For example, if you have a dog-walking business, your offer would include a promise to walk someone’s dog in exchange for compensation from the owner, the offeree.

3. Acceptance

The acceptance of an offer expresses the willingness to abide by the terms and conditions of the contract.

Three things must occur for an acceptance to be valid:

• – The offeree knows the offer
• – The offeree has intent to accept the offer
• – The acceptance is expressed as an agreement to the conditions of the offer

4. Legality

The contract’s legality refers to whether the terms and conditions are consistent with the law. If the subject of the agreement isn’t legal, the contract won’t be valid.

For example, you can enter into a contract to pay someone for a legal service, but not to perform illegal services or sell illegal goods. No matter the contents of the contract, it won’t be valid and enforceable in court if the subject itself is not legal.

5. Consideration

Both parties entering into a contract must offer something of value that makes the other want to agree to it. This could be money, goods, the completion of an action, or the act of refraining from an action.

If there’s no exchange of money, the parties should ensure that the court would see the trade as valuable.

6. Mutuality

Also known as the meeting of the minds, mutuality states that both parties must be bound to perform the obligations stated in the contract. If that doesn’t happen, the law will rule that neither party is legally bound to the contract. Both parties need to be bound to the contract, or neither is bound to the contract.

Ready to Sign on the Dotted Line?

Legally binding contracts are complicated. Before you make an agreement, make sure your contract covers the 6 key elements of a contract.

Need more guidance with your business contracts from an experienced business coach? Work with Allison Todd directly!