By definition, a contract is an agreement between two or more competent parties that creates an obligation to do or not to do a particular thing. A contract is not required to be in a certain format. To be o n a single piece of paper or even to be in written form. The agreement can be either written or oral.
Essentials of a valid contract
The four essential elements are necessary to create a valid contract are as follows:
Lawful subject: A contract must be a lawful (legal) purpose and not contrary to public welfare. For example, an agreement between two parties to rob a gas station would not be a valid contract since the subject of the agreement is unlawful.
Offer and acceptance: There must be an offer and acceptance, agreement, or meeting of the minds. A mutual understanding of the terms of the contract is reached when an offer made by one party is accepted by another party, and communicated to all parties.
Consideration: A contract must specify a sufficient consideration. Either valuable or good consideration may be sufficient. Valuable consideration is money or anything of value that can be converted to money. This include cash, personal property, real property, of enforceable promises. Love and affection, which are incapable of being expressed in terms of money, are called good consideration. An executory contract must be accompanied of the consideration will not come into question.
Competent parties: A valid contract as an agreement between two or more competent parties. Minors, persons who are declared as incompetent by the courts, and persons known to be mentally incompetent do not have the capacity to contract. The law affords special protection to individuals who lack the capacity to contract. A contract made with an incompetent party is voidable. The incompetent party may void the contract and cannot be held accountable for performance. Conversely, an incompetent party can enforce a contract than can not be enforced against them.
Creation of a contract
A contract is created when the offer of one party is accepted and acceptance of the offer is communicated to the person who made the offer. Communication of acceptance indicates that a complete meeting of the minds exists. A contract does not exist until communication has taken place. Delivery of a contract to all parties is proof that communication has taken place.
Frequently, contracts have an acknowledgment by the parties as the voluntary nature of the transaction. The acknowledgment is accomplished when the parties appear before an officer of the court such a notary public or judge. Proof of identity is required, and signature of the parties is made in the presence of the public official. Acknowledgment is necessary if a document is to be recorded in the public records.
A notary public applies a stamp or impresses a seal to the document to attest to the authenticity of the signatures of the parties. The seal of a notary public, called an acknowledgement, should not be confused with the word “seal” as used in connection with contract law. In contract law, the word “seal” does not refer to the acknowledgment. The seal is the placement of the word “seal” or the letters “L.S.” locus sigilli, following the signature of the parties.