Contracts are at the center of most legitimate business actions or transactions that you undertake. Contracts have replaced the firm handshake of the 20th century and can provide damning evidence in a court of law. Today, contracts can be verbal, written or both, and can often be legally binding in certain circumstances.
When creating a written contract, it must be enforceable if it is to stand a chance of being upheld by a court of law. To be considered enforceable, a contract must meet several criteria, in addition to being clear and specific. If a breach of contract occurs between two or more parties and the contract they signed is legally enforceable, a judge will hear the case, and determine if what occurred truly was a breach and if certain circumstances warranted that breach. After which such a judge is likely to find in favor the plaintiff.
For a contract to be valid and legally binding, it must include six elements; offer, consideration, acceptance, mutuality, competence and capacity, legality.
Elements of a Valid Contract
- Offer: The basis of a contract is an offer to do something, or to refrain from doing something. This offer or promise is often premised on a reciprocal act by another party and all the terms of the exchange must be agreed upon or accepted by all parties involved. It is this acceptance that leads us to the second element of a contract, which is acceptance.
- Acceptance: This refers to an acceptance of the written or verbal offer that has been proposed by another party. It essentially refers to a mutual consent to both the offering and reception of that offer. This would be the binding agreement the two parties are joining in to.
- Consideration: Consideration is the transfer of something of value between the parties to the contract. The items of value can include money, goods or services, or all of them. The underlying point is that all parties to a contract must be exchanging something of value wherein one party pays the other for his/her products or services.
Without a mutual exchange of valuables, it is not a contract, but a gift, which holds no legal sway.
- Intention: More often than not, the validity of a contract will be hinged on the intention of the parties to that contract. This essentially requires the parties to explicitly intend to enter into a contract, to understand what they are getting into, as well as to agree to all the terms of the contract. This is what is often referred to as a “meeting of the mind.”
- Competence/Capacity: Additionally, the parties entering into a contract must be competent and have the capacity to do so. This essentially refers to being over the legal age limit of 18, being sober and of sound body and mind. If one party is incompetent in any way, the contract is immediately considered invalid.
- Legality: The contract in question must also concern a legal exchange. If the contract surrounds the purchase of drugs, for instance, it is automatically voided, even if all the other elements are present.
If a contract is missing any of these items, it does not necessarily become void, it just will not be enforced by a court of law if a dispute occurs that is brought before a court of law. If you are writing up and signing a contract, you should be sure to include the aforementioned elements to ensure that the contract will be enforced if the situation calls for it.
Feel free to call us to speak to one of our experienced Dallas business attorneys to help you draft or review your contract before signing it. He or she will make sure that the agreement you are entering into is properly legally binding, and that it concerns the exchange that you are expecting.
Generally, a verbal contract will suffice for certain situations, but for any long-term arrangements, a written contract is the better option.
If you are in a situation that involves the signing of a contract, there are a few things to keep in mind. The first is to read carefully and then read it again, making sure you understand everything in it. Never sign something without understanding all its terms. Even if you do have a lawyer review it, (which you should) read it anyway, and ask your lawyer to explain it to you. It is imperative to know exactly what you’re signing.
You should also be sure the contract comes with exit terms, as well as a clear explanation of your rights; this protects you if you decide to abandon the contractual agreement, or if the other party breaches the contract, enabling you to hold them legally accountable.
And if you ever have even the slightest doubt, postpone the signing of the contract until you are sure you want to involve yourself in the agreement. Never enter into a legally binding agreement unless you have full confidence in the contract and the other party you are signing with.
In business, there is a very high chance that you will be seeing more than a few contracts. If you are in business with one or more partners, a partnership contract is vital to the efficient running of your company, as these agreements will explain who contributes what, and how much each person is paid. You may also run into instances where you hire an independent contractor, for example, a freelance writer. For long term work with an independent contractor, a written contract keeps the agreement intact and keeps you safe from a violation of terms. If you end up working with vendors, or third party companies, a Non-Disclosure agreement protects your client information.
So whether your contract use is personal or corporate, always be sure to get a lawyer, read the contract, and be cognizant of your rights, before signing.