When two or more parties agree to something, it`s important to determine whether that agreement constitutes a contract. Why? Because if it does, both parties are legally bound to uphold their end of the bargain. But when exactly does an agreement become a contract? Let`s explore.
In general, an agreement becomes a contract when it meets certain criteria. These include:
1. Offer and acceptance.
One party must make an offer, and the other must accept it. This creates an agreement. For example, if Company A offers to pay Company B $10,000 to design a website, and Company B accepts the offer, this creates an agreement.
2. Consideration.
Each party must receive something of value. In the above example, Company A receives a website, and Company B receives $10,000. This is consideration.
3. Mutual assent.
Both parties must fully understand the terms of the agreement and willingly enter into it. This is known as mutual assent. If either party is coerced or misled into agreeing, the contract may be voidable.
4. Competent parties.
Both parties must be legally capable of entering into a contract. For example, minors and those who are mentally incapacitated may not be able to enter into a contract.
5. Legal purpose.
The contract must be for a legal purpose. For example, a contract to sell illegal drugs would not be enforceable.
Once these criteria are met, an agreement becomes a contract. It`s important to have a written contract, as this helps ensure that both parties have the same understanding of the terms. A contract should include the scope of work, payment terms, deadlines, and any other relevant details.
If one party breaches the contract, the other party may have legal recourse. This could include suing for damages or seeking specific performance, which means asking a court to force the other party to fulfill their obligations under the contract.
In conclusion, an agreement becomes a contract when there is offer and acceptance, consideration, mutual assent, competent parties, and a legal purpose. Having a written contract helps ensure that both parties understand the terms and can hold each other accountable if necessary.