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What makes up a valid contract?

On Behalf of | Mar 28, 2024 | Contract Disputes and Litigation |

Contracts play a huge role in people’s daily lives, governing agreements ranging from purchasing everyday items to selling a house.

However, people may not realize what makes a contract legally binding or valid. Exploring the central elements that make up a valid contract can help people facing contract disputes.


The foundation of any contract lies in the offer. An offer is a clear statement of intent that has specific terms. For instance, when someone advertises a car for sale at a certain price, they are making an offer to potential buyers.


Once the first party makes an offer, acceptance is the next step. Acceptance occurs when the other party agrees to all of the terms of the offer without changing any of them. It is important that individuals communicate acceptance clearly and unambiguously to the person making the offer.


For a contract to be valid, there must be something of value exchanged between the parties involved. This exchange, known as consideration, can take various forms, such as money, goods or services. Consideration shows that both parties are willingly entering into this agreement.

Mutual assent

Mutual assent shows that both parties understand and agree to the terms of the contract. This ensures that there is genuine agreement and understanding between the parties, preventing misunderstandings or misinterpretations. Trust and clarity are important even when forming a connection that is not bound by a contract.


Not everyone has the legal capacity to enter into a contract. Minors, individuals under the influence of drugs or alcohol and those with mental incapacities may lack the legal capacity to agree with a contract. Capacity ensures that both parties are capable of understanding the consequences of their actions.


A contract must have a lawful purpose to be enforceable. Any agreement that involves illegal activities or violates public policy is not enforceable by the courts. Making sure the contract is legal protects the interests of both parties and upholds the principles of justice.


While many people write contracts, not all contracts need to be in writing to be valid. Some, like oral agreements, can also be legally binding.

A contractual agreement can greatly impact a person’s financial state in some situations. Knowing all the parts of this agreement helps people protect their rights when the other party breaches a contract.