Contracts are the bedrock of business. It’s how people create businesses, build company relationships, grow their brands, and keep things running smoothly. But what makes a contract enforceable?
This article explores the elements of an enforceable contract. The team at Massingill provides efficient and effective business solutions.
If you have questions, please contact us today.
What Are the Elements of an Enforceable Contract?
At its core, a contract is an agreement between two or more parties to do something in exchange for something else.
For example, the buyer agrees to give the seller money if the seller promises to hand over the keys to the property.
The idea is that both parties carry a benefit and a burden.
The buyer’s burden is that they need to fork over the cash, but by doing so, they enjoy the benefit of getting the property.
The seller’s burden is having to give someone else their property, but their benefit is that they get the money from the sale.
That’s a macro view of contracts. Now let’s go over the details.
The Parties Are Legally Competent to Enter Into a Contract
When discussing whether an agreement is legally valid, individuals first look to one of the most basic enforceable contract elements: can both parties legally enter into a contract?
In Texas, like most jurisdictions, the law treats people under the age of 18 differently from those who are over 18.
What does this mean for contracts? It generally means that if someone enters into an agreement when they are under 18, the contract is voidable.
In other words, minors can choose to disavow or enforce the contract, while adults cannot.
The Subject Matter of the Contract Must Be Legal
It may go without saying that a contract isn’t enforceable if it’s about something illegal or if one of the parties to the deal can’t legally enter into a legal agreement.
There Must Be a Meeting of the Minds—Offer and Acceptance
Another element of an enforceable contract is that there is a meeting of the minds. There needs to be an offer and an acceptance. Let’s go over what each of these elements entails.
To be a valid offer, it needs to be sufficiently detailed and precise, especially about things like:
- What the contract is about. If the agreement is to buy a company, it needs to say so.
- Who the parties to the contract are. The agreement has to say who is involved and what their role is.
- What the consideration is. The “consideration” is the valuable thing (e.g., money, goods, or services) that each party is giving up to enjoy the benefits of the contract.
The offer’s form is almost as important as what’s in it. The offer must contain enough information to let the recipient know that it’s an offer to enter into a contract.
If two parties are at a bar and talk hypothetically over an hour about how much one of them would sell their company, it doesn’t mean it’s an offer.
This is true even though they may have covered some of the details that need to be in a valid offer.
On the other hand, if they write down the critical information on a napkin at a bar, it could be an offer, which brings us to the next element of an enforceable contract: acceptance.
The acceptance is a clear statement that someone is aware of (or had the opportunity to become aware of) the terms of an offer and agreed to the terms.
Most times, clear evidence that someone accepted the offer is their signature on the dotted line or sending out a confirmation email after the customer makes a purchase.
What’s important here is that they knew what they were looking at was an offer and they accepted it.
Not reading the proposal or its terms closely enough usually isn’t a valid reason to back out.
The exception would be if they signed the contract while under duress or if the contract is the product of fraud.
The Contract Must Be Supported by Consideration
As discussed, the parties must each carry a benefit and a burden under the contract. In the legal world, this is also called “consideration.”
For a contract to be enforceable, it should contain all the elements described above and be supported by consideration.
Put another way, each party must have skin in the game, standing to lose something. That’s what makes the difference between this agreement:
Bob asks Allen if Allen wants to work for him over the summer. Allen says yes.
And this one:
Bob asks Allen if Allen wants to work for him over the summer. Bob offers to pay Allen $15 an hour and says he would work Monday through Friday, 8 AM to 5 PM. Allen says yes.
In the first example, Allen agreed to work for Bob, but he is not receiving any benefit. Bob is the only one receiving a benefit—having Allen work for him.
What’s more, Bob doesn’t share any burden under the agreement.
In contrast, Bob and Allen have established benefits and burdens in the second example—they each give and get something.
Massingill—Contract Attorneys Texans Trust
Massingill serves Texas businesses of all shapes and sizes.
The team includes an attorney with extensive experience working as Legislative Counsel for a United States Representative.
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Past clients describe the team as “absolutely incredible” and praise its ability to help clients “quickly and affordably” resolve the matter.