5 Essential Elements That Make Up A Valid Contract | Propertylogy

5 Essential Elements That Make Up A Valid Contract

By on August 7, 2017

Paying hundreds of dollars, and sometimes thousands, for a real estate attorney to help you draft a contract can be painful to accept. Especially when you witness first hand that it was generated by a template with just the personal details and property information amended.

Yet at the same time, it would be well worth the expenses when you run into legal conflicts with tenants who decide to screw you on terms and rental.

Firstly, these “templates” written by lawyers must have been amended countless times over the years to cover every legal gap towards your favor as the landlord.

Secondly, because it is the lawyer you’ve hired who underwrote the contracts, you can be at least certain to some degree that he knows exactly how to defend and enforce it through legal means.

Valid contracts are seldom taken to court to be challenged. This is be cause all parties involved will already know the outcome.

It is those contracts that are not clear enough that leave gaps and loopholes for others to challenge in court. A judge will then decide the outcome.

If you don’t already know, in the legal world, just a simple misplaced word can totally change the meaning of a contract. Surely you don’t want to be on the wrong end of that in legal conflicts with third parties and tenants.

And you definitely don’t want a court to rule your contract as void or voidable as it don’t meet all the requirements of law.

So what essential elements must be present in a contract that makes it binding, valid and enforceable?

1) Competent parties

Without question, contracts can only be entered into by parties who are legally competent.

  • Minimum age of 18
  • Not intoxicated (depends of various factors)
  • Sound mind

People who are below the age of 18 might not be mature enough to understand what he or she is really getting into when signing off a contract. This requirement is meant to protect minors from being exploited by others.

If a party was intoxicated when endorsing a contract, he or she can legitimately call for the agreement to be cancelled. However, some courts are very wary of parties exploiting this term. And a judge has to interpret matters and assess the intent of entering into a contract.

A judge can declare persons of unsound mind of being incompetent to enter into valid contracts. When this topic comes up, the issue of power-of-attorney always springs to mind.

2) Mutual agreement

There must be willing agreement by all parties involved to the provisions of the contract.

A lot of factors can be evaluated to determine if there was in fact, the presence of mutual agreement when the contract was first signed.

This can include but not limited to:

  • Offer and acceptance
  • Counteroffer
  • Absence of fraud
  • No innocent misrepresentation
  • No material mistakes
  • Expression of contractual intent
  • No duress involved

The existence of mutual agreement is best evidenced by acts and words of the parties involved.

3) Lawful objective

For a contract to be enforceable, under no circumstances can it call for the breaking of laws.

The simple reason being that a court of law cannot be expected to enforce a contract that requires law to be broken.

It would make absolutely no sense as the legal system is the appointed protector of law.

Such contracts are void by default. And if it’s already running, it is unenforceable.

For example, a tenancy agreement cannot be enforceable in a court of law if the rental is above the maximum rent limit set by the state.

4) Consideration

For any agreement to be valid and enforceable, there must be the presence of consideration.

This means that there must be something of value used in exchange. This can be in the form of money, property, services, or a promise to do something.

This implies that if something was given away for free, there might be an absence of consideration. And therefore the contract could potentially be challenged in court for validity.

This is why we often see family members selling (or gifting) items of considerable value to each other for $1. Without that $1 transacted, it could be argued that there was no consideration.

While gifting is good consideration, why walk a thin line of being challenged in court when a $1 consideration will eliminate the problem altogether.

5) Contract in writing

There is a little law in each state known as a Statue of Frauds. It’s purpose of existence is to prevent real estate fraud by requiring all sale or interest in land to be in writing and signed.

Otherwise, contracts are not enforceable in a court of law.

This encompasses documents like:

  • Binders
  • Acceptances
  • Land contracts
  • Offers to buy
  • Deeds
  • Escrow
  • etc

On top of this, a number of states require that the sale of personal property valuing in excess of $500 to be in writing under the Uniform Commercial Code.

If you find all these essential factors difficult to comprehend, then you will realize why getting a real estate attorney to draft your contracts can be well worth the money.

There’s little point spending hours of your personal time deciphering all these legal speak and still end up with a final contract that is not valid.

So in areas of real estate contracts, it is best to get the professionals involved.

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