What Makes a Contract Valid?

Before answering the question about what makes a contract valid, it is helpful to understand what a contract actually is.

What is a Contract?

A contract is a legally binding agreement between two or more parties setting forth the rights and obligations of each party involved. Contracts are an important part of business and legal transactions and are used in various situations such as real estate transactions, sales, business agreements and – most importantly for this blog – medical employment agreements. A valid legal contract can be an oral contract or an agreement in writing, but in either case, must contain certain essential elements. Understanding the key components of a legal agreement is important to ensuring that the rights and obligations of all parties are enforceable under the law.

Elements of a Valid Contract

There are three key elements of a valid binding contract: Offer, acceptance, and consideration.

Offer

An offer is a proposal made by one party to another, expressing a desire to enter into a binding agreement with one or more other parties subject to certain conditions. A contractual offer can be communicated orally, in writing, or even through conduct. For example, in a real estate transaction, an offer may be made by submitting a written proposal outlining the terms of the purchase. With medical employment contracts, an offer can be presented through verbal agreement, followed by a subsequent written confirmation. To be enforceable, an offer must be clear, definite, and communicated to the other party.

Acceptance

Acceptance is the agreement to the terms of an offer. For example, with an employment contract, acceptance refers to the employee’s compliance with the terms of the employer’s offer. An acceptance can also be expressed in different forms. It can be as simple as saying “yes” or can involve hours of complex negotiation with legal counsel. Acceptance can also be implied through conduct, where the parties act in a manner consistent with the terms of the offer.

An important point with regard to contract acceptance is a concept called the “mirror image rule.” This means that there is a “meeting of the minds” with an offer and acceptance, the parties have a clear understanding of the essential terms and conditions of the contract, and willingly consent to them. The “mirror image rule” also means that if you accept an offer, you do so without any modifications to the offer. If there is no, “meeting of the minds,” then there’s no contract. For example, with a medical employment contract, if you used Photoshop to change proposed compensation from $100/hour to $200/hour, the employer would not be obligated to pay you $200/hour since there was no agreement on this term.

Even with an offer an acceptance, a contract isn’t legally binding until the third contract element is met – consideration.

Consideration

Consideration refers to something of value that is exchanged between the parties involved in a contract. This value can take many forms, such as money, services, or even promises. A valid agreement requires that each party give something of value and receive something of value in return. This exchange of consideration demonstrates that both parties have entered into the contract willingly and have reached a mutual agreement.

Contractual consideration must be “adequate consideration” and does not have to be of equal value to the consideration received, but it must have some value. As a simple example, in a contract for the sale of a product, the consideration from the buyer is the money paid, while the consideration from the seller would be the product being sold. Lack of consideration or insufficient consideration, may make a contract’s terms unenforceable. Whether in the form of money, services, or other valuable items, consideration is essential in making a contract enforceable.

Other Requirements for a Valid Contract

There are many other requirements for a valid contract. Here are a few of the more important ones to keep in mind without going into too much legal detail.

Legal Purpose

Contracts with unlawful promises or considerations are considered invalid. For instance, if a contract involves a promise to engage in illegal activities (such as hiring a hit man) or violates public policy (such as hiring someone to harass your neighbor), it will be deemed unenforceable. Keep in mind that what may be considered legal in one jurisdiction could be deemed illegal in another.

Capacity

All parties to a contract must have the legal capacity to enter into that contract. This means that the person must have the mental ability to understand the nature and consequences of the contract. Individuals under the influence of drugs or alcohol may not have the mental capacity to enter into a contract. Similarly, individuals who are deemed mentally incapacitated or legally incompetent may also lack the capacity to contract since they may struggle to grasp complex contractual terms or assess the potential risks and benefits. Age requirements may also affect legal capacity. For example, minors may lack the legal capacity to enter into certain types of contracts or may require the consent of a guardian or parent.

Absence of Undue Influence

A contract made under coercion, duress, or undue influence may not be valid. Parties must enter into the contract voluntarily, without being forced or coerced into doing so. For example, a contract signed under a threat of being physically assaulted would probably not be a valid contract.

The Statute of Frauds

Although a verbal contract is still a binding contract, one rule of contract law lists common situations where certain types of contracts must be in writing due to a propensity for fraud. The Legal Dictionary notes the mnemonic “MY LEGS” to summarize the type of contract that is only enforceable if in writing: contracts involving Marriage, any agreement longer than a Year, sale of Land, payment of estate debts by Executor, sale of Goods more than $500, and Suretyship where one person promises to pay the debts of another.

Summary – What Makes a Contract Valid

A valid contract requires an offer, acceptance, and consideration. The offer represents one party’s intention to enter into a contract. Acceptance signifies the other party’s consent to the terms of the offer. Consideration refers to something of value exchanged between the parties, which could be money, goods, or an exchange of promises.

Enforceable contracts protect all parties involved by establishing clear expectations and responsibilities. A well-written contract prevents misunderstandings or misinterpretations, and addresses major issues and potential contingencies. By ensuring that both sides are adequately protected through a well-structured agreement, contracts play an integral role in promoting fairness and trust in business transactions.

Need help with your medical employment contract? Give me a call. I’d be happy to try to help you.