Although lots of contracts are filled with mind-bending legal gibberish, there's no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll want to put into a written contract are best expressed in simple, everyday English.

All that is necessary for most contracts to be legally valid are the following two elements:

 

  • all parties are in agreement (after an offer has been made by one party and accepted by the other)
  • something of value has been exchanged, such as cash, services or goods (or a promise to exchange such an item) for something else of value.

 

In a few situations, a contract must be in writing to be valid. State laws often require written contracts for certain transactions such as real estate sales or contracts that will last more than one year. You'll need to check your state's laws to figure out which contracts must legally be in writing. Of course, because oral contracts can be difficult or impossible to prove, it is wise to write out most agreements, even if not legally required.

Let's look a bit more closely at the two elements--agreement between the parties and exchange of things of value--necessary for a valid contract.

Agreement Between Parties, a.k.a. Offer and Acceptance

Although it may seem like stating the obvious, an essential element of a valid contract is that all parties really do agree on all major issues. In real life there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.

The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing. Let's say, for instance, you're shopping around for a print shop to produce brochures for your business. One printer says (or faxes) that he'll print 5,000 two-color flyers for $200. This constitutes his offer. If you tell him to go ahead with the job, you've accepted his offer. In the eyes of the law, when you tell the printer to go ahead, you create a contract, which means you're liable for your side of the bargain (in this case, payment of $200). But if you tell the printer you're not sure and want to continue shopping around (or don't even respond, for that matter), you clearly haven't accepted his offer and no agreement has been reached. Or if you say his offer sounds great, except that you want the printer to use three colors instead of two, no contract has been made, since you have not accepted all of the important terms of the offer--you've changed one term of the offer. (Depending on your wording, you may have made a counteroffer, which is discussed below.)