How Do I Create a Legally Enforceable Contract?
Understand the key elements of a contractual agreement
on September 27, 2022
“When people think of contracts, they tend to think of multi-page documents with all this arcane legal language in them—but they don’t have to be that way,” says New York business attorney Sarah Gold.
There are a few key requirements any contract must meet in order to be legally binding and enforceable. It’s possible to have a contract that meets all the requirements while being clear and to the point.
This article will explain what generally must be included in a legally binding contract. Once you understand the general requirements, it’s a good idea to consult with a lawyer about your situation to ensure everything is taken care of.
As Gold says, it’s better to get answers to all your legal questions sooner rather than later.
What Is a Contract?
“A contract is effectively an agreement between two or more parties regarding terms of their own choosing,” says Gold.
Whether the contract is about “an item or a money agreement, it doesn’t really matter what the terms are about as long as both parties agree to it.”
Additionally, “the parties have to agree to the same thing,” says Gold. This is the “concept called a meeting of the minds” or mutuality. It means that “both parties have to agree to whatever that same thing is. If they don’t agree to the same thing, there is no valid contract.”
The Essential Elements of a Contract
To make a legally binding contract, you have to meet the following requirements:
- Legal capacity. The parties that form a contractual relationship must have the legal capacity to enter the contract. Having legal capacity means the parties are competent to enter an agreement. Individuals who lack legal capacity include:
- Minors (individuals under age 18)
- Individuals who have a mental disability
- Individuals who are taken advantage of or coerced while under the influence of alcohol or other mind-altering substances
- Mutual assent. The parties must have a “meeting of the minds” to perform (or not perform) specific actions. They understand what is being talked about and agree to the terms of the contract. As Gold says, “If [the parties] don’t agree to the same thing, there is no valid contract.”
- Exchange. The parties must agree to give something of value for something else of value. You may hear the thing of value referred to as “consideration.” For example, one person offers their car to another person in exchange for $5,000. Both the car and the money are things of value or “consideration” in the exchange. There are many kinds of goods and services that could be offered, and money isn’t the only thing that could be given in exchange. For example, the parties might agree to exchange different goods or services, such as a baker giving their baked goods in exchange for a gardener’s produce. As long as things of value are being given in exchange and the parties agree to it, the agreement is good.
- Offer and acceptance. In the exchange, one party makes an offer, and the other party either accepts or rejects it within a reasonable period of time. The offeror can revoke the offer as long as it’s before the offeree accepts. Once the offeree accepts, the agreement is binding. The offeree can also make a counteroffer, which is an implicit rejection of the original offer. For example, the offeree could suggest paying a lower price than what the offeror initially asked. The original offeror would then have to agree to the counteroffer. This bargaining process can go back and forth multiple times before the parties reach a final agreement or decide not to go forward.
Do Contracts Have To Be In Writing?
Not all contracts must be in writing. A contract could be “a handshake, an email, a phone call, as long as the parties agree to it,” says Gold.
So, oral contracts can create a binding agreement just like written contracts. However, “There are very specific times when a contract has to be in writing, says Gold.
Every state has a law known as a statute of frauds that says certain kinds of contracts have to be in writing. “Primarily,” she says, “if [the agreement] can’t be done within a year, [the contact] has to be in writing.”
Additionally, “certain contracts for items over $500—especially if it involves a business or consumer contract, usually have to be in writing.”
Finally, “any contract involving real property, such as land or a building, has to be in writing as well.”
If there is a written contract, both parties must sign it in order for the contract to be enforceable. Otherwise, it’s just a piece of paper, says Gold.
Even if your agreement doesn’t involve real estate, items over $500, or a timeframe longer than a year, it’s always a good idea to put your agreement in writing.
“Oral contracts are harder to enforce–it often becomes a matter of ‘he said, she said,’” says Gold.
If you’re a business owner entering into a contractual agreement, having it all in writing could prevent major disputes down the road.
On the other hand, if the transaction involved is small or straightforward, and a writing is not required, you may not need to worry about putting the agreement in writing. It will ultimately depend on your situation and the stakes involved.
What Is Contract Law Based On?
Contract law is primarily a matter of state law and common law.
Common law is also called case law and consists of courts’ judicial opinions or precedents. Every state has its own judiciary with a body of common law.
Because of this diversity, there can be significant differences in contract law from one jurisdiction to another. This is one reason why having a lawyer in your area review your contract is a good idea.
In addition to case law, “there is a concept called the Uniform Commercial Code (UCC), which is a code that has been adopted by all fifty states and has some basic rules regarding contracts,” says Gold.
“Most contracts [under UCC] are business or merchant contracts” involving either merchant-to-merchant or merchant-to-consumer transactions or the sale of goods, she says.
The UCC functions as a sort of “supplement [to case law],” says Gold, “because the UCC primarily sets forth how certain things are handled within a contract, while case law can be used to figure out how, if a contract has gone bad, it’s going to be handled in the courts.”
Questions for a Contracts Attorney
There are many reasons why individuals and businesses enter contracts, from getting maintenance done to buying real estate to getting supplies for manufacturing a product.
Whatever your situation, getting legal advice about your contract from an experienced attorney can help you avoid disputes down the line. And if legal conflicts are unavoidable, having a lawyer review your contract will make sure you are in a good position against any legal action.
Many contract lawyers provide free consultations for potential clients. These meetings let you get legal input and decide if the attorney or law firm meets your needs.
To get the most out of a consultation, ask informed questions such as:
- What are your attorney’s fees and billing options?
- How do I make a legal contract?
- What needs to be included in the contract agreement?
- What are the types of contacts?
- Does the contract need to be in writing?
- What happens if there is a breach of contract?
- Are there alternatives to a lawsuit to enforce this contract?
Once you have met with a lawyer and gotten your questions answered, you can begin an attorney-client relationship.
Look for a contracts attorney in the Super Lawyers directory for legal help with your contract needs.