The Elements of a Legally Enforceable Contract in My State

Many business deals are “handshake” arrangements. But when are such agreements actually enforceable in court? Does a contract always have to be in writing?

The basic elements of a contract can vary by state law. Here is a brief overview of the essential elements of a valid contract, but for personalized legal advice, talk to a local contract law attorney.

There Must Be an Offer

Any legally enforceable contract begins with an offer. This could involve something as simple as, “I will offer to paint your house for $1,000,” or “I will buy your old computer for $500.” Of course, a business contract may involve much more complex terms of the offer.

The key to making an offer is that it is:

1. Effectively communicated to the other party
2. Contains certain and definite terms.

For instance, if you say, “I may paint your house at some point in the future for $1,000 or $2,000,” a judge would likely say that was not a valid offer.

“The most common misconceptions that I run into relate to the enforceability of terms that are viewed as unfair or one-sided,” says Jenny L. Martinez, an attorney at Munck Wilson Mandala in Dallas, Texas who works mainly with financial institutions and mid-to-large size businesses.

“For example, many contracts contain mandatory arbitration or venue provisions. These provisions are typically enforceable even though the result can be the waiver of your right to a jury trial or requiring you to litigate your claims in a place very far from home, and this place may have no relation to the transaction. Terms that seem harsh, unfair, or one-sided are routinely enforced.”

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There Must Be Acceptance of the Offer

Once the first party (offeror) communicates a valid offer, the other party (offeree) must accept it. The acceptance of the original offer must be unqualified and unequivocal.

Of course, the second party is free to propose a counteroffer. For example, they could say, “What if I pay you $750 to paint my house instead of $1,000?” Then the other party would have to accept the counteroffer. Ultimately, a contract needs mutual assent or a “meeting of the minds” to form a valid contract.

There Must Be Mutual Consideration

A binding contract is not the same thing as a promise. In other words, if you say, “I promise to paint your house on Thursday,” and the other person agrees to that, there is no contract despite their acceptance.

This is because you receive nothing in exchange. A contract must have some exchange of value, also known as “mutual consideration.” For many contracts, this mutual consideration is cash. But anything of value can serve as consideration.

The Parties Must Be Capable of Forming a Contract

Technically, anyone can enter into a contract. But in most states, a minor (that is, a person under the age of 18) has the right to void the contract at any time.

So, while a minor can enforce a contract signed with an adult, the reverse is not true — an adult cannot enforce the contract against the minor. Parties must have the legal capacity to enter into a contract.

The Contract Must Be For a Legal Purpose

This should go without saying, but a contract to do something illegal is not enforceable because it goes against public policy.

An agreement to purchase illegal drugs would fall under this category. So would hiring someone to commit a crime for money.

The Contract Should Be in Writing

In some cases, a verbal agreement is sufficient to create a legal contract. However, it is generally a good idea to get a written contract to create a legally binding agreement. Written contracts are easier to enforce than oral contracts. An agreement may be unenforceable if there is no evidence.

Also, keep in mind that some types of contracts must be in writing for enforceability (a requirement known as the statute of frauds). In many states, this includes contracts for the sale of real estate or the sale of goods worth more than $500, as well as any agreements not capable of performance within one year.

“If the deal falls through, and you wind up in court, your contract is more likely to be enforced if it was drafted by an experienced attorney,” says Martinez. “Having an attorney draft your contract will ensure that the language clearly and unambiguously reflects what was — and was not — agreed to. This will greatly assist you in recovering damages resulting from the other side’s breach.”

Get Legal Help After a Breach of Contract

For more information on the legal requirements for forming an enforceable contract, contact a local contract law attorney. An attorney can help ensure you have the terms of the contract to enforce your agreement. A legal professional can also help you enforce an important agreement.