At a minimum, all contracts, whether for goods or services, require four elements to be valid and binding, including: (1) offer and acceptance; (2) mutual assent; (3) certainty; and (4) consideration. If any of the foregoing is absent, the contract may be void and unenforceable.
The first requirement for a valid contract is offer and acceptance. An offer is the communication of a proposal or other demonstration of a willingness to enter into a bargain so that the other party to whom it is communicated reasonably believes that if they accept the proposal, a contract will be made. The offer must manifest a present contractual intent. The offer must also be specific. Rejection, lapse of time, revocation by the offeror, or even a counteroffer, will normally all invalidate the original offer.
Acceptance is the term given for the act by which the offeree agrees to the proposed bargain extended by the offeror. The acceptance must be unequivocal. If any conditions are placed upon the acceptance of the proposal, the acceptance actually constitutes a counteroffer, which in turn must be accepted by the other party.
Another requirement for a contract to be valid is that there is mutual assent between the parties manifesting their intent to be bound by the terms of the contract. Both parties must be bound by the contract or neither party is bound.
Another factor required for a valid contract is that there be certainty as to the material terms of the contract. This does not mean that conditions stated in the terms of the contract are certain to occur. Rather, it refers to the certainty as to what the material terms are that constitute the contract. Where the parties do not have the same understanding as to the material terms of the contract, no contract is formed.
All contracts require consideration to be enforceable and valid. Consideration is something of value that the parties have bargained for. In other words, consideration is what you are offering to provide as your part of the contract in exchange for what the other party to the contract is providing to you. A simple example illustrates this point. In obtaining a loan from the bank you promise to repay both the principal of the loan, plus interest, and may also offer collateral to the bank. Your promise to repay the loan, the interest you pay on the loan, and the collateral securing the loan all constitute your consideration to the bank. In exchange, the money loaned to you constitutes the consideration from the bank.
The foregoing requirements to a valid contract can be established orally or through a written agreement memorializing the contract, or, under certain conditions, by the actions of the parties. In certain situations, contracts may be required to be in writing to be valid. These situations are governed by the Statute of Frauds and are outlined in Utah Code Ann. Sections 25-5-1 through 25-5-9. Many other legal principles also affect the validity and enforcement of contracts including, but not limited to such principles as substantial performance, reliance, accord and satisfaction, mistake, fraud, duress, etc.
Finally, it should also be noted that just because an agreement between two parties does not satisfy all of the elements to a valid and enforceable contract, the parties may still have obligations to each other where a contract was attempted. Courts in Utah sit in equity, meaning that they are empowered to dispense justice based upon equitable principles. If the parties attempt to enter into a contract, which is later determined to be invalid for one reason or another, Utah courts may still impose obligations to perform on one or both parties.
The most common scenario is where one party performs its obligations under the belief that a valid and binding contract has been formed. The contract is later deemed invalid for one reason or another. Because the performing party has provided something of value to the non-performing party, a court may require the non-performing party to reimburse the party which performed its obligations for the fair market value of their performance in order to prevent the unjust enrichment of the non-performing party.
Contract law is extremely broad and can be complicated. An attorney can be invaluable in assisting you to prepare, negotiate or interpret a contract. Likewise, if you need assistance in pursuing your rights under a contract, you may wish to consult an attorney to protect your interests.
Disclaimer: This article is offered as a discussion of legal principles only and is not intended as legal advice to any person or entity. Jeff Steele, Hirschi Christensen, PLLC, and the Davis County Clipper specifically disclaim any liability related to the information provided in this or any other article appearing herein. You should consult an attorney regarding any specific legal question or to obtain legal advice or counsel.