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Virtual General Counsel LLC

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The basics of contract formation

| Jun 1, 2018 | Contracts |

People in Denver’s business world enter into contracts every day. Some of these may be standard contracts, such as sale contracts or employment contracts. However, even a standard contract can involve a lot of negotiating before the parties come to an agreement. It is important, then, to have a basic understanding of how contracts are formed.

In general, a contract is formed when several elements are met. First, there is an offer made by one party to the contract that is accepted by the other party to the contract. Second, there must be consideration, that is, an exchange of one product or service for something else of value, such as money. When these elements are properly met, this means that both sides to the contract are in an agreement about what is being offered and what is being exchanged.

Often, there is a good deal of negotiation that takes place before both sides come to an agreement on the terms of the contract. Businesses may try to use standard templates for their contracts, but the other side still has the opportunity to make counteroffers. This back-and-forth will go on until both sides believe they are gaining something of value due to the exchange. When this happens, a contract is formed.

This is only a basic overview of contract formation. In essence, contract law can be highly nuanced. It is important for those negotiating a contract to understand what they will be legally bound to do should a contract be formed. No one wants to form a contract that is vague or confusing, so having an understanding of the law is essential when it comes to contract formation.

Source: SBA.gov, “Contract Law – How to Create a Legally Binding Contract,” assessed on May 2, 2018