The Elements of a Legally Enforceable Contract in Texas
What basics do you need for a solid contractual agreement?
on April 7, 2020
Updated on February 8, 2021
Many business deals are “handshake” arrangements. But when are such agreements actually enforceable in court? Does a contract always have to be in writing? Here is a brief overview of the requirement for forming a contract under Texas law.
There Must Be an Offer
Any contract begins with an offer. This can be 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 a much more complex offer with several different terms.
The key to making an offer is that it is (1) effectively communicated to the other party and (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 Texas 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 who works mainly with financial institutions, mid-size and large 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, and one-sided are routinely enforced.”
There Must Be Acceptance
Once the first party communicates a valid offer, the other party must then accept it. The acceptance must be unqualified and unequivocal. Of course, the second party is free to propose a counter-offer—e.g., “What if I pay you $750 to paint my house instead of $1,000?”—but that is not acceptance. Ultimately, there must be mutual assent or a “meeting of the minds” to form a contract.
There Must Be Mutual Consideration
A 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. In order for a contract to exist, there must be 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 under Texas law, a minor—i.e., 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: The adult cannot enforce the contract against the minor.
The Purpose of the Contract Must Be Legal
This should go without saying, but a contract to do something illegal is not enforceable in Texas. 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. But it is generally a good idea to get any contract in writing, as that makes it easier to enforce its terms. Also keep in mind, there are some types of contracts that must be in writing to be enforceable under Texas law. This includes contracts to purchase real estate or goods worth more than $500, as well as any agreement whose terms cannot be performed 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.”
For more information on this area, see our contract law overview.