If you run a business, you may enter into contracts more often than they may expect. Whenever you or your company agree to take some action or make a payment in exchange for anything of value, a legal contract has been created.
How do you know if the agreement that you entered into is a valid contract? For a contract to be valid, it must meet the following criteria:
Mutual agreement – There must be an express or implied agreement. The essential requirement is that there be evidence that the parties had a “meeting of the minds.”
Consideration: There must be consideration given by all the parties, meaning that every party is conferring a benefit on the other party or himself sustaining a recognizable detriment, such as a reduction of the party’s alternative courses of action where the party would otherwise be free to act with respect to the subject matter without any limitation. Usually money is exchanged for either goods or service
There are two common theories for consideration. The first is the “benefit-detriment theory”, in which a contract must be either to the benefit of the promisor or to the detriment of the promisee to constitute consideration. The second is the “bargain theory”, in which a contract must be either to the benefit of the promisor or to the detriment of the promisee to constitute consideration.
Competent Parties: Both parties must have the capacity to understand the terms of the contract they are entering into, and the consequences of the promises they make. Minor children, mentally disabled individuals do not have the capacity to form a contract, and any contracts with them will be considered void by New York Courts.. Corporations are are considered persons under the law, and therefor able to engage in contracts. However, unlike an individual, a corporation needs to be represented by counsel in court.
Mutual Obligation to Perform: Both Parties must have some obligation to fulfill to the other.
Proper Subject Matter: The contract must be legal. A contract to purchase cocaine in exchange for money will not be enforced by the New York Courts.
Mutual Right to Remedy: Both parties must have an equal right to remedy upon breach of the terms by the other party.
Where one party does not perform their obligations as per the contract they commit a breach of contract. A breach of contract is technically a failure to perform the contract in accordance with the strict terms. The non-breaching party should place the breaching party on written notice of any breach of contract before issuing court proceedings.