A contract must meet certain minimum requirements to be considered legally valid. The follow are the basic essential elements of a contract.
Offer and acceptance (mutual assent)
There must be an offer by one part that is accepted by the other. The person who makes the offer is the offeror. The person who accepts the offer is the offeree. This requirement also is called mutual assent. It means that there must be a meeting of the minds, or complete agreement about the purpose and terms of the contract. In cases where the statute of frauds applies, specifically leases of one year or longer, the offer and acceptance must be in writing. The wording of the contract must express all the agreed-on terms and must be clearly understood by the parties.
An offer is a promise made by one party, requesting something in exchange for that promise. The offer is made with the intention that the offeror will be bound to the terms if the offer is accepted. The terms of the offer must be definite and specific and must be communicated to the offeree.
Proposing any deviation from the terms of the offer constitutes a rejection of the original offer and creates a new offer. The original offer ceases to exist because the Landlord has rejected it. The Renter may accept or reject the Landlord’s counteroffer. Any change in the last offer may result in a counteroffer until either party reached an agreement or one-party walks away.
Any offer or counteroffer may be withdrawn at any time before it has been accepted, even if the person making the offer or counteroffer agreed to keep the offer open for a set period of time. After the offer has been accepted, it can be withdrawn any time before the other party has been notified of the acceptance (Notice of Acceptance).
An offer is not considered accepted until the person making the offer has been notified of the other party’s acceptance. When the parties communicate through a Licensee or at a distance, questions may arise regarding whether an acceptance, rejection, or counteroffer has occurred. Though current technology allows for fast communication, a signed agreement that is faxed, for instance, would not necessarily constitute adequate communication. The Licensee must transmit all offers, acceptances, or other responses as soon as possible to avoid questions of proper communication.
Besides being terminated by a counteroffer, an offer may be terminated by the offeree’s outright rejection of it. Alternatively, an offeree may fail to accept the offer before it expires if a time frame was attached to the offer. The offeror may revoke the offer at any time before receiving the acceptance. This revocation must be communicated to the offeree by the offeror, either directly or through the Licensees who are the parties’ Agents. The offer also is considered revoked if the offeree learns of the revocation and observes the offeror acting in a manner that indicates that the offer no longer exists.
The contract must be based on consideration. Consideration is something of legal value offered by one party and accepted by another as an inducement to perform or to refrain from performing some act. There must be a definite statement of consideration in a contract to show that something of value was given (or promised) in exchange for the other party’s promise.
Consideration must be good and valuable between the parties. The courts do not inquire into the adequacy of consideration. Adequate consideration ranges from as little as a promise of “love and affection” (good consideration), to a substantial sum of money (valuable consideration). Anything that has been bargained for and exchanged is legally sufficient to satisfy the requirement for consideration. The only requirements are that the parties agreed to the consideration and that no undue influence or fraud occurred.
Reality of Consent
Under the doctrine of reality of consent, a contract must be entered into as the free and voluntary act of each party. Each party must be able to make a prudent and knowledgeable decision without undue influence. A mistake, misrepresentation, fraud, undue influence or duress deprives a person of that ability. If any of these circumstances is present, the contract is voidable by the injured party. If the other party were to sue for breach, as a defense, the injured party could say the agreement lacks reality of consent.
A contract must be for a legal purpose – that is, even with all the other elements (consent, competent parties, consideration, and offer and acceptance), a contract for an illegal purpose or an act against public policies is not a valid contract.
Legally Competent Parties
All parties to the contract must have legal capacity. That is, they must be legal age and have enough mental capacity to understand the nature or consequences of their actions in the contract. In most states, 18 is the legal age of contractual capacity.
Validity of Contracts
A contract can be described at valid, void, voidable, or unenforceable, depending on the circumstances. A contract is valid when it meets all the essential elements that make it legally sufficient or enforceable.
A contract is void when it has no legal force or effect because it lacks some or all of the essential elements of a contract.
A contract that is voidable appears on the surface to be valid but may be rescinded or disaffirmed by one or both parties based on some legal principle. If it is not disaffirmed, a voidable contract may nevertheless end up being executed. A voidable contract is considered by the courts to be valid if the party who has the option to disaffirm the agreement does not do so within a period of time prescribed by state law.
A contract entered into under duress or intoxication or as a result of fraud, mistake, or misrepresentation is always voidable by the compelled or defrauded party. A contract with a minor is also voidable: minors are permitted to disaffirm Real Estate contracts at any time while underage and for a certain period of time after reaching majority age. A contract entered into by a mentally ill person usually is voidable during the mental illness and for a reasonable period after recovery. On the other hand, a contract made by a person who has been adjudicated insane (that is, found to be insane by a court) is void at the outset based on insanity judgements being a matter of public record.
Illinois law provides that all persons come of “legal age” on their 18th birthday. Contracts entered into by a minor in Illinois are voidable until the minor reaches majority and for a reasonable time afterward. There is no statutory period within which a person may void a contract after reaching majority in Illinois. What is considered “reasonable” depends on the circumstances of each case, although the courts tend to allow a maximum of 6 months.
Contracts made by a minor for what the law terms necessaries are generally enforceable. “Necessaries” include items such as food, clothing, shelter, and medical expenses. While a Real Estate sales contract with a minor probably would not be enforceable in Illinois, leases or rental agreements signed by minors generally are enforceable because short-term housing is usually considered a necessity.
An unenforceable (in court) contract may seem valid on the surface; however, neither party can sue the other to force performance (Oral Contract). A contract may be unenforceable because it is not in writing, as may be required under the statute of frauds.
Valid – has all legal elements and if fully enforceable in court and between the parties
Void – lacks one or all legal elements
Voidable – has all legal elements but may be rescinded or disaffirmed
Unenforceable – has all legal elements and in not enforceable in court but only between the parties