In legal terms, a contract is a document that details an agreement between two or more parties. This agreement between parties, such as a finder’s agreement or a sales agreement, is legally enforceable. Contracts may be written or oral, but in order to actually be legally binding, most contracts must be made in writing and signed by all parties involved. Some other common examples of contracts include real estate purchase contracts, employment contracts, confidentiality agreements, and insurance contracts.
Contracts must be made voluntarily, and all parties involved in the contract must be free from duress. Drafting a contract refers to the act of writing out the terms and details of a specific contract, in order to outline and determine the legal obligations of the parties involved. This is so all parties involved in the contract fully understand the terms of their agreement, as well as their respective duties towards each other. Although a contract may be drafted by anyone, it is often wise to consult an attorney in order to create a reliable and secure contract.
Some contracts are more complex than others. Regardless of the complexity of the contract, it is crucial that both parties are fully aware of the details so they may avoid breaching the contract. A solid contract should contain information such as what constitutes a breach of contract, as well as any consequences for doing so. This can help all parties involved uphold their duties and avoid a possible breach.
What Are the Elements of a Legally Binding Contract?
As previously mentioned, the majority of important contracts need to be written (as opposed to oral) and signed by all parties involved, in order to be legally binding and enforceable. Additionally, in order to be enforceable and binding in a court of law, contracts must contain the following elements:
- Mutual Consent: The parties involved have a shared understanding as to what the contract does and does not cover. An example of this would be a contract involving a “model” of some sort. If one party is operating under the assumption that “model” refers to a model car, and another party assumes that “model” refers to a human model, there is no mutual consent. This lack of mutual consent may likely render the contract non enforceable;
- Offer and Acceptance: One party must communicate the intent to be bound by a contract, while another party must assent to the terms being offered. Simply put, one party must make an offer, and another party must accept the offer. There are some alternatives to acceptance if the offer is not acceptable to the other party, including negotiating the terms of the contract;
- Consideration: This refers to the mutual exchange of something valuable. Although there may be no mutual consideration, there are some instances in which a one-sided promise may be enforced. This is referred to as detrimental reliance and is generally only applicable when the enforcement of the promise is actually necessary in order to avoid an injustice;
- Capacity: All parties involved must have the ability to knowingly enter into the contract. This means that all parties must have the mental capacity to do so. Thus, all parties must be of legal age, and all parties must have the authority to contract. The authority to contract is especially important if the person making and signing the contract is simply an agent of the party. An example of this would be an employee for a business; and
- Legal Purpose: The contract is to be created for legal purposes only in order to be legally binding and enforceable. Contracts to sell illegal drugs, commit fraud, or commit other crimes will obviously not be recognized or enforced.
What Constitutes Adequate Consideration? When Is a Contract Not Enforceable?
As mentioned above, one of the elements necessary to the enforceability of a contract is adequate consideration. Typically, a contract is only legally binding if every party involved promises something to the other parties. An example of this would be one party promising a house in exchange for a certain amount of money. Laws governing adequate consideration vary from state to state.
The following is more information regarding what may constitute adequate consideration:
- Consideration may be a promise to do something, such as making a payment or performing a service. However, it may also be a promise to refrain from doing something. An example of this valid consideration would be a promise to refrain from behaving in a specified way;
- Consideration should be of some value, although there are some rare cases in which this is untrue as previously discussed;
- Past consideration does not constitute adequate consideration. Meaning, if a party has promised to pay another party for a service that has already been provided, there is no adequate consideration and therefore no binding contract; and
- Consideration decided upon by all parties involved is binding, even if it seems unfair or inadequate. An example of this would be one party selling their car for considerably less than what it is worth, the contract remains binding.
Some common examples of why a contract may not be enforceable include:
- A party was forced into the contract against their will, such as a party that was under duress at the time the contract was made;
- The contract violates federal and/or state laws, or is being used to force immoral actions and violate public policy;
- A party misrepresents the agreement to the other parties, such as nondisclosure; and
- An impossibility, such as a natural disaster, that results in the contract becoming void or too shockingly expensive to enforce.
Do I Need a Contract Attorney?
A skilled and knowledgeable contract attorney can provide guidance when drafting or reviewing a contract. Additionally, an experienced contract can help you determine whether a contract is legally enforceable. A contract attorney can also determine whether a contract is beneficial for you.
Therefore, if you are in a situation where you believe that someone has breached their duties under a contract with you, it is in your best interests to consult a well qualified contract attorney in your area. An experienced attorney can file a lawsuit on your behalf, as well as represent you in court.