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What Are the Elements of an Enforceable Business Contract?

Signing Contract

When creating a business contract, the last thing you should do is leave some element of the contract open to interpretation. Drafting and establishing a straightforward contract that leaves no room for ambiguity is absolutely essential if you want to avoid costly litigation down the road. If the language, meaning, and intent of the contract are unclear, or could potentially be interpreted multiple ways, it may be difficult to enforce.

That’s why it is crucial to ensure that your business contract is legally valid and unambiguous, and that it anticipates all possible unexpected scenarios. When creating a contract, your goal should be to draft a document so solid that arguing against a different interpretation of the terms in court, or alleging that it doesn’t address a specific circumstance, is virtually impossible. To achieve this, you will most likely need the assistance of a knowledgeable contract attorney, preferably one with extensive experience litigating business contracts.

Most Important Elements of a Business Contract

There are the elements that must exist in your business contract:

  • Offer – This element of the contract simply establishes that you are offering something to the other party in exchange for something else. This could be a payment, good, service, or something else of value. On its own, your offer has no real legal value and can’t be enforced, at least not until the other party accepts the offer.
  • Acceptance – Once the other party accepts the terms of the offer, the contract can be enforced. However, the other party might want to negotiate the terms of the offer in order to get a better deal for themselves. They could even come back with a counteroffer. You might have to negotiate for a period of time before both parties are satisfied with the terms of the contract. Unless the two parties can agree on a compromise, they won’t be able to establish a contract. The crucial point is that, whatever form the offer eventually takes, the acceptance must precisely match it. Otherwise, the contract will not be enforceable.
  • Consideration – Consideration is the value or benefit that each party is receiving from the contract. Consideration can be monetary, but it doesn’t have to be. It could be a promise to do something, a promise not to do something, services, or physical items. For the contract to be legally binding, all parties involved must be getting something for themselves. Without consideration, it may be difficult to enforce the terms of the contract.
  • Mutuality of Obligation – When entering into a contract, all parties must agree to the exact same terms and be bound to perform their obligations as included in those terms. This is known as mutuality of obligation. This concept is related to the notion of consideration. If either party fails to uphold the obligations they agreed to, then the contract is invalid.
  • Legal Capacity – You must have the legal capacity or authority to enter into a contract. Certain individuals who may not have a legal capacity to enter into a contract include mentally incapacitated or incompetent individuals, children, people who try to enter into a contract on behalf of another without having been given the authority to do so, and individuals who have been coerced. In some cases, capacity must be discerned by a judge.

If you are making a business contract, it should be in writing. Not all contracts are required to be in writing, but it will be far more challenging to enforce a verbal agreement than a contract that is in writing that covers all eventualities.

Contact a Riverside Business Contract Attorney

Drafting a legally enforceable business contract is a complex process with lots of room for error. Given the high stakes associated with most business contracts, we highly recommend consulting with an experienced Riverside, CA, contract lawyer from Wagner Zemming Christensen, LLP, before entering into a legally binding agreement. We can help you draft a carefully-worded, ironclad contract and help you enforce it if necessary. Contact us for a consultation by calling 951-686-4800.

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