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Is This Contract Valid?

Learn the nitty gritty about what makes an agreement legally binding.
February 28, 2007

Have you ever considered suing someone for not holding up their end of a bargain? Or were you the one being sued? Whether you're in business or not, you probably encounter contracts almost every day. However, few people understand what it takes to make a contract valid.

A contract is basically an agreement to do or not to do something. Saying a contract is valid means it's legally binding and enforceable. The point of a contract is to clearly outline an agreement so the "object" is accomplished while preventing disputes or litigation. Any lawyer will tell you that a lawsuit is a very inefficient and expensive way to resolve contract disputes, and it also means you lose control over the issue being disputed since a judge or jury will be making the decisions instead.

It's important to know not all contracts have to be in writing. In California, for instance, certain agreements can be oral and still be legally enforceable. Either way, a contract must include the following: parties capable of contracting, consent of the parties, a lawful object, and consideration.

Certain contracts aren't valid unless in writing. Generally, they deal with real property, certain debts, money exceeding a certain amount, or objects that won't be performed within one year or within the promisor's lifetime. Naturally, the exceptions can be as broad as the rules. When the agreement doesn't have to be in writing, all the other elements of a valid contract still have to be fulfilled.

The bottom line is that while parties generally come to transactions in good faith, a well written contract is the best protection should a dispute arise. In a perfect world, you should contact an attorney before drawing up or entering into any contract. But for the sake of time and money, you could have an attorney simply review your deal in some cases. And if the amount is small--such as a $100 loan--and the contract is simple, then a review by a local legal aid will probably suffice. The smaller the amount involved and the simpler the contract, the less you need an attorney. Use common sense to guide you.