Contracts often form the backbone of a successful business, and many people in Denver rely on contracts every day to keep their business viable. The exchange of money, goods and services sometimes requires some intense negotiations, but the end goal is to form a legally binding agreement.
It is important to understand what must be done to form a contract. To form a contract there needs to be an offer, consideration, acceptance and mutuality. Let us break down these topics, to better understand contract formation.
An offer is simply a promise to either do something or not do something in the future. Consideration consists of an action that will or will not be performed in exchange for the other party doing or not doing something. Consideration must have some sort of value. Consideration differs from a gift, as a gift goes only one way voluntarily, whereas consideration involves an exchange wherein both parties have an expectation of the other.
Acceptance takes place when the parties to the contract orally, in writing or through performance as indicated in the contract, unambiguously accept each other’s offer. Finally, there is mutuality. This basically means that each party has the same understanding of the terms of the contract and has agreed to them.
Negotiating a business contract takes a good deal of back and forth, but until the above elements are met, a contract does not exist. If a person offers to do something, and the offer is declined, there has not been a contract. If the two parties can never come to a “meeting of the minds,” then there is not a contract. Contract negotiations are not always successful, but when they are they create a legally binding document, both parties must follow.