How Do I Form A Contract?

Sites like Docracy are a good resource for templates that entrepreneurs can use to draft their own contracts. If you’re an entrepreneur who decides to do your own contract, two concepts you should be aware of when forming contracts: offers and consideration.

The point of when an offer is made can be a little unclear. However, the point where an offer can almost always be said to have been made is the point where one party puts a written contract in front of the other party or parties to be signed. However, the agreement is only made when the other party agrees to all of the terms (unless it’s an agreement to sell or lease goods, where the law gets a little more complicated). Otherwise, signing an agreement while objecting to or adding terms merely results in a counteroffer, which the original offeror must agree to.

Offers, unless otherwise agreed upon, stay open for a commercially reasonable amount of time or until they are withdrawn by the offeror. (What’s a “commercially reasonable amount of time”?, you ask? Good question. There is no hard and fast rule, although a survey of case law would arrive at an approximate number)

It is also possible to keep an offer open for a fixed period of time (this is known as an option agreement or option contract). The offeree typically pays a price to have a period of time, such as 30 days, to consider the agreement; the offeror cannot withdraw the offer during that period (and often cannot make the same offer to another party).

Every agreement also requires consideration in order to be enforceable — essentially, an exchange of something of value. It can be as simple as an exchange of cash for goods, such as when one buys groceries, or it can be an exchange of something more intangible like a promise, such as a promise to pay, or a forbearance, such as forbearing from a right to sue a party. Therefore, if you are writing your own contract, you should ensure that each party is giving something of value to the other party. This is generally not an issue for most agreements, but it is important to make sure that there is an exchange of value. It becomes particularly important for amendments to agreements, which require their own separate consideration in order to be enforceable (unless the agreement involves the sale or lease of goods).