Forming a Legally Enforceable Contract

November 29, 2010

Today’s blog is about the most fundamental issue in contract law: do you actually have a contract? While this might seem like a no-brainer, you’d be surprised at how many sophisticated businesses file lawsuits to dispute particular terms in a “contract” only to get the unpleasant surprise that the disputed terms are moot because there was no legally enforceable contract at all. Here are the necessary elements of a legally binding contract.

An enforceable contract must involve an offer and an acceptance involving “consideration.” This means that there must be a quid-pro-quo, or “I’ll trade you this if you trade me that” type of arrangement. An agreement that essentially promises some performance or delivery of goods without stating what will be delivered in return is not an enforceable contract. Similarly, “past consideration” is generally not valid substance for a contract. Thus, if someone has done something in the past, and a subsequent agreement promises to give something in recognition of that past performance, the “contract” is generally not enforceable.

Your contract must also demonstrate a “meeting of the minds” in regard to all of the “essential terms” of the contract. Terms that are essential and necessary for an enforceable contract will vary depending on the subject of the contract. Certain terms can be left open for resolution at a later time. However, some provisions must be present to have an enforceable contract, such as price and quantity. Contracts for specific types of goods and services will also have additional “essential terms” that are required to form a binding contract. A contract to provide a loan, for example, must include the amount to be loaned, the maturity date, the interest rate, and the repayment terms. If you don’t consult with an attorney to properly draft your contract, you might have only an “agreement to agree” which will not be enforceable in court.

Finally, you won’t have an enforceable contract unless all parties have properly executed the contract. For many kinds of contracts, verbal agreement is all that is necessary to have a binding, legally enforceable contract. Yet due to the Statute of Frauds, oral contracts are generally not enforceable regarding the sale of real estate, services requiring more than one year to complete, and sales of goods exceeding $500 in value – other limitations and exceptions apply. Even if your contract would be enforceable as an oral contract, it’s always best to record your contract in writing to prevent costly litigation regarding the undocumented terms of your agreement.

 

Topics: Sales, Business Best Practices, Legal

James Blake

The Blake Law Firm, PLLC.

James Blake is a growth-oriented business attorney who strives to be a creative business partner, to identify value-add opportunities, and to crystallize the relationships, structures, and processes that will drive your commercial success. James Blake practices law in Texas and Hawaii, and has protected the interests of businesses across a broad range of industries, including technology, construction, service and retail, food and beverage, franchisors and franchisees, product manufacturers, and investors. His work experience encompasses commercial transactions, litigation, and advising business operations in the U.S., Africa, and Asia. James was an editor of Law Review at the University of Hawaii and conducted international commercial law research for the Institute of Asian Pacific Business Law. He served as the Official Reporter for the 2008 IAPBL China Enterprise Bankruptcy Law Symposium held in Hong Kong, and in the same year worked at a large firm in Singapore. James currently advises clients in international business and investment issues in addition serving his client’s legal and business needs in Hawaii and Texas. Currently based in Austin, Texas, James is an avid writer and enjoys speaking at business-law seminars in addition to his legal practice. In his spare time, James enjoys sculling and kayaking on Ladybird Lake, outdoor photography, and supporting visual and performing arts.
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