Overview of Contracts

In the U.S., a contract is generally defined as an agreement (or a promise) between two or more parties that creates enforceable obligations. 

Contracts can be written or verbal, but in order to be enforceable, they generally must include three elements:

  1. an offer made by one party; 
  2. acceptance of that offer by another party; and 
  3. the exchange of something of value (called “consideration”).

Consideration does not need to be monetary (and in many cases, it’s not). Consideration can be the obligation to do something (or not do something), or it can be the benefit both parties will get from entering into the contract.   

Consideration is often where contracts fall apart. The parties may make promises to one another but if there’s no exchange of something of value, there’s no valid, enforceable contract. Sometimes, the promises are enough, but it’s good to have a clear understanding of the value each side is providing to the other. The best way to do this is to have everything written down in a contract signed by both sides. This eliminates any confusion or ambiguity over whether there was an exchange of value. 

Contract law varies by state in the U.S., so there may be state-specific laws that apply to certain business transactions. It’s important to consult a qualified lawyer when drafting and negotiating contracts even when using one of the templates found on the Path platform.