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Contract Enforceability: An Overview

Every business begins with an idea. This idea leads to more ideas and these ideas translate into the actual business. But, before a business can begin, typically, businesses like to get contract in placed to outline the legal aspects. But what happens if this is not done properly? This article looks at this question and serves as an overview of contract law enforceability.

A properly created contract is a legal agreement between parties which creates mutual obligations that business and individuals alike use to protect their respective interests. Contracts outline not only the obligations, but the legal consequences if these obligations are broken. Contracts can be written or verbal. But most businesses tend to lean toward using written contracts as they are easier to reference and there is less room for interpretation and subjectivity. There are three essential components to any contract: the offer, the acceptance, and the consideration.

The offer is a voluntary opportunity provided by one party to second party. The “offering” party (i.e. the offeror) will present to the second party information indicating who is eligible to accept the offer, key terms such as price/salary/etc., and most importantly, a clear declaration of intent to enter the contract with the second party.

Acceptance is the next component to any enforceable contract. The party who is offered to sign the contract (i.e. the offeree), must clearly and knowingly accept the offer. Acceptance can take many forms including a non-verbal sign such as a thumbs up or a nod. But most contracts after accepted through the signing as the signing of a contract is the safest way legally speaking to ensure enforceability. A lot of contracts are now done electronically, and courts enforce e-signatures equally with handwritten signatures. But it is important to note acceptance can be done by the offeree even without formally signing anything. If the offeree receives an offer and performs (i.e. begins working), that contract has been deemed to be accepted in a court of law.

Lastly, to have an enforceable contract, there must be consideration value given by the offeror to the offeree and vice versa. This is what is colloquially known as the exchange of “consideration.” In other words, consideration requires the exchange of things of value. Consideration can be financial, such as a loan, property, such as goods, or services such as maintenance or protection from harm. There does not need to be an exchange of money to have an enforceable contract.

Even after you have an offer, the offer has been accepted, and there has been an exchange of consideration, you may still not have an enforceable contract. To be enforceable, some other considerations include whether the contract violates public policy. For example, if a contract requires one party to break the law, that contract will not be enforceable. Additionally, all parties must consent. There are certain classes of persons, such as minors, who are unable to enter contracts at all. Finally, all parties must understand the terms of the contract. So, for example, if a term of the contract is ambiguous and one party interprets the term one way and another party interprets the term another way, the contract itself (or possible just the term in question) may be unenforceable.

Once an enforceable contract is in action, there are certain duties associated with the parties. All signatories to the contract are bound by all agreed upon terms and if one party fails to live up to the terms without a legal defense, they have breached the contract, and the non-breaching party may seek remedies outlined in the contract or through a court of law. But, a breach only occurs if there is a valid contract already in place. This is a fact specific analysis, but an important distinction from a “breach” of a contract that is not already enforceable to begin with.

If you have a question about a contract or any other question related to your business, the attorneys at Dalton & Tomich have years of experience and would be happy to assist you.  Please contact us at (313) 859-6000 or [email protected].

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