What Makes a Contract Valid?

Two businessmen shaking hands in the background, contract signed in the foreground

A contract is an essential legal document that ensures a clear understanding between two different parties. Contracts are used frequently with businesses, whether in forming a partnership, hiring an employee, or another agreement. While one would assume that every contract presented is enforceable, that is not the case.

The following conditions need to be met for a contract to be valid.

Parties' Awareness of the Agreement/ Signing a Contract Under False Pretenses

Verbal contracts are not uncommon but are extremely difficult to enforce if not later solidified by a physical contract. When a contract is made, both parties must acknowledge the agreement and that they are both bound to the contract.

Another example of awareness of the agreement is each party’s representation. If one party is signing a contract under false pretenses, fraud, or misrepresentation, the contract would not be considered valid.

The legal term for this is “fraudulent misrepresentation,” which occurs when one party deliberately makes a false statement in order to induce another party to enter into the contract. In order for a court to invalidate a contract based on fraudulent misrepresentation, the false statement must have been material, or important, to the other party’s decision to enter into the contract. The false statement must also have been made with the intention of deceiving the other party, and as a result of the misrepresentation, the deceived party suffers some type of damages.

If you sign a contract under false pretenses, you may be held liable for any losses incurred by the other party as a result of your misrepresentation. In some cases, you may also be charged with fraud or other crimes. If you are found guilty, you could face significant penalties, including fines and jail time. Therefore, it is important to be honest when signing contracts and to make sure that you fully understand the terms and conditions before agreeing to them.

The Offer

The contract should clearly state the offer being presented from one party to the other party. There may be some conditions that come with the offer.

Longevity of the Offer

Some offers may only be accepted until a certain reasonable time. The term reasonable is open to interpretation; however, depending on the type of business and the contract, both parties should agree on the amount of time the offer is valid.


Some contracts may have information regarding the opportunity for a counteroffer while others won’t. Doing this without proper preparation or representation could be costly as there is no guarantee that the other party will accept the counteroffer.

Revoked Offer

If one party does not accept the contract terms, they may revoke the contract and there is no binding agreement between the parties.

Exchange of Value

This is a third essential element of a contract. For example, if an employer is offering an employee a job, the exchange of value would be the compensation the employee would receive. The agreeing party should read this section carefully prior to agreeing to the contract.

Questions About a Business Contract?

A contract could have statements in it that may be difficult to comprehend. That’s why before potentially getting out of a contract, it’s critical to know whether the contract you signed is enforceable or valid. The experienced contract law attorneys at Purdy & Bailey, LLP are ready to look over your case. Read what past clients have said about their experience working with us and reach out so we can help.

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