Is Your Contract Enforceable?
Black and Davison
The Legal Requirements for a Valid Contract
When you’re operating a business, you’re constantly talking to customers, suppliers and others, inquiring about the availability of resources or seeking to sell goods or services. When are those conversations just that—preliminary discussions before the formation of a contract—and when do they rise to the level of an enforceable agreement? Here are the basic elements of a legally binding contract.
There Must Be an Agreement
Agreement assumes at least two parties (there’s really no upper limit on the number of parties to a contract) and it assumes that the parties have a mutual understanding of their rights and responsibilities. Under the law, that is known as offer and agreement. To be valid, an offer must be communicated to the other party, and the person making the offer must manifest an intention to be bound by the terms of the offer. The offer must also state specific or definite terms. As a general rule, acceptance must be communicated to the person making the offer—the exception is with unilateral contracts, where performance constitutes acceptance. An acceptance that changes the term of an offer is technically not an acceptance, but a rejection and counteroffer.
There Must Be Consideration
Consideration is a legal term that means “something of value.” Both parties to a contract must give consideration, either in the form of giving or doing something or refraining from doing something they have a right to do.
The Parties Must Have the Legal Capacity to Enter into a Contract
Essentially, this requirement ensures that both parties have the ability to understand that they are entering into a contract, and to understand the terms and obligations. Parties may lack capacity for a number of reasons:
- Age—Persons under the age of 18 are considered under the law to lack the capacity to enter into a binding contract. Such a person may, however, ratify an existing contract after attaining the age of 18.
- Intoxication—A person may lack capacity if under the influence of drugs or alcohol at the time the contract was signed
- Mental incapacity—Mental illness, dementia or other afflictions that limit a person’s cognitive functions can make them incapable of entering into a contract.
The Parties Must Have Voluntarily Entered into the Agreement
The courts will not enforce a bargain where one of the parties did not knowingly and voluntarily agree to the terms. Accordingly, if there’s evidence of fraud or misrepresentation, duress or undue influence, the contract may not be valid.
The Subject Matter of the Contract Must Be Legal
The courts won’t enforce agreements for the performance of acts that violate laws, statutes or ordinances, or that are contrary to public policy.
Contact Our Experienced Business Contract Attorneys
Send us an e-mail or call our office to schedule an appointment to learn how we can help with the negotiation, review or preparation of a valid contract. Evening and weekend consultations are available upon request.