Step Seven: Enter contract
Entering into a legal contract with another individual or party helps provide legal protection, as well as a specific outline of the deal.
When you enter into a contract with another party, it should meet a few requirements before it can be considered a valid legal contract.
Specifics
In order for a contract to be valid it has to feature the contract details. In the contract, outline exactly what is being dealt with. If you are buying a house from someone else, it has to have the legal description of the property so that there is no question about which property is being conveyed. If you are purchasing a car, it needs to give the make, model, year and VIN number. The contract should also be specific about the names of the parties involved and their role in the transaction. It should also outline the nature of the agreement.
Consideration
A valid legal contract also must have consideration. Consideration is giving something of value in return for something else. For example, if you are buying a car, you give the seller a certain amount of money and the seller gives you the car. When you enter into an employment contract, you agree to give service for a specific amount of salary. In this section, the factors associated with consideration should also be included. For example, you should include information about payment terms, time considerations and other expectations.
Capacity
Before a valid legal contract is created, both parties must be able to prove that they have the capacity required. This means that the individuals have to be of legal age, depending on state law and they must be of sound mind. This means that if they are mentally handicapped or are under the influence of drugs or alcohol, they cannot enter into a binding contract. The parties must also enter into the agreement under their own free will and cannot be coerced into signing.
Legal
The agreement also has to have legal terms. If you enter into an agreement to perform an illegal act, this would not constitute a legal contract. For example, if you enter into an agreement to launder money for an illegal operation, that contract would not be enforceable by the law because you are involved in an illegal activity.
Proper Form
A legal contract also must be in the proper form. Typically, this means that the contract must be in writing. The proper form is determined by the type of contract that you are engaged in and the laws of your state. In some cases, verbal contracts are binding and are perfectly acceptable. In most cases, you should do the contract in writing so that no confusion exists if any legal matters come up later.
Have your lawyer or buyers agent review this document to make sure the deal is contingent upon:
1. your obtaining a mortgage
2. a home inspection that shows no significant defects
3. a guarantee that you may conduct a walk-through inspection 24 hours before closing.
You also need to make a good-faith deposit -- usually 1% to 10% of the purchase price -- that should be deposited into an escrow account. The seller will receive this money after the deal has closed. If the deal falls through, you will get the money back only if you or the home failed any of the contingency clauses.
