A contract is the foundation of every successful business transaction. Think of a contract as a promise that all parties have agreed to uphold. While anyone can make promises, anyone can also break promises. Enforceability makes a contract powerful and legally binding, and breaking (or breaching) an enforceable contract can lead to legal actions and consequences.

But what are the elements of an enforceable contract? How can you ensure that contracts are enforceable and recognized by the law? Below are six elements that can make a contract enforceable, along with a few tips:

Offer

          The first step in forming an enforceable contract is the offer. An offer is a clear and definite proposal made by one party (the offeror) to another (the offeree). The offer must outline the terms and conditions under which the offeror is willing to be bound. The offer should be specific enough to allow the offeree to understand what is being proposed and to whom it is offered.

Tip: Make sure that your offer terms are clear and that the offer is received and acknowledged; without an actual offer, there can be no contract. 

Acceptance

          Once an offer is made, the next important element is acceptance. Acceptance occurs when the offeree agrees to the terms of the offer without any modifications or changes. This agreement can be verbal, written, or implied through actions. For acceptance to be valid, it must mirror the terms of the offer exactly; any alterations could be considered a counteroffer rather than an acceptance.

Tip: Obtain written acceptance whenever possible to have documentation. Verbal agreements can be harder to prove in disputes, and are often not permitted under the statute of frauds in areas like real estate, contracts for the sale of goods over a certain amount, and agreements that cannot be performed within one year. 

Awareness

          Also known as mutual assent or a “meeting of the minds,” awareness is the mutual understanding and agreement on the terms of the contract by all parties. This means that all parties must be fully aware of the contract’s terms, voluntarily agree to the terms, and be bound by their free will. 

Consideration

          Consideration refers to the value exchanged between the parties involved. It is the benefit that each party receives or expects to receive from the contractual agreement. Consideration can take many forms, including money, goods, services, or promises to perform (or not perform) certain actions. Without consideration, a contract lacks the incentive for the parties to agree.

Tip: If you are unsure whether the consideration you expect is included in the contract, make sure to include explicit acknowledgment of that consideration in the agreement. Clearly outlining consideration in a contract can help prevent misunderstandings and ensure that all parties are clear on the value being exchanged.

Capacity

          For a contract to be enforceable, the parties entering into the contract must have the legal capacity to do so. This means that they must be of sound mind, not under the influence of drugs or alcohol, and of legal age to enter into a contract. The parties also must not be coerced or unduly influenced into signing the contract. Ensuring that all parties can contract is essential for the validity of the agreement. Capacity ultimately boils down to this simple question: 

“Do all parties involved have the ability to agree to the terms, meanings, and words of the contract?”

Tips: If the signatories are:

• Minors,

       a legal guardian or representative may act on their behalf.

• Individuals with an intellectual disability,

       a legal guardian or someone with power of attorney may act on their behalf.

• Lacking sufficient comprehension of the language used in the contract,

       provide a certified translation of the contract. 

Legality

           The final element of an enforceable contract is legality. Legality means that the contract’s terms and the activities it promotes comply with the law. A contract that involves illegal activities, such as fraud or the sale of prohibited goods, makes the contract unenforceable and is void by law. Contract should comply with federal, state, and local laws. 

Tip: There are cases where there may be discrepancies between what is allowed at the federal level and what is permitted at the state level. It is important to consult with a business attorney or contract lawyer if there’s any part of the contract that might introduce such conflicts.

Understanding and implementing these six elements are important for legal, valid, and enforceable contracts. This applies to all contracts, including those for mergers and acquisitions, venture capital financing, or other types of business transactions. You should also seek guidance from a business law firm with a proven experience in contract law to assist with the contract process. 

Still have questions about the contract process? For more contract tips, grab our free contract guide HERE.

Feel free to also contact us today at 844-2-TKALAWFIRM or visit www.tkalawfirm.com to learn more about how we can help! ☑️☑️☑️

This information is presented for general informational purposes only, is not to provide legal advice, and is not intended to represent a complete list of all possible issues. This information should not be construed as legal advice and does not create an attorney-client relationship. You should seek the advice of an attorney regarding your particular situation.