Contracts are a necessity that pervades the business world. Contracts are legally binding agreements that businesses make with employees, commercial landlords, banks, insurance companies, and customers. Contracts are necessary in a variety of business aspects from loans to employment. In order for a contract to be valid, the contract must bind both parties to the specified agreement. Especially in business, if one party does not hold up its end of the deal, the other party has the legal right to collect damages. In this article our business lawyers of The Jayson Law Group LLC will examine the basic requirements of legally binding contracts.
In order to be enforceable by a court, every contract must contain at minimum:
1) Consideration. Each party must promise to provide something of value to the other party. This exchange is the crux of the contract.
2) Offer and acceptance. There must be a clear and definite offer of something valuable, and a clear and definite acceptance of the valuable.
3) Legal purpose. The purpose for the agreement must not violate the law. For example, a loan agreement that charges interest in excess of usury laws cannot be enforceable in court.
4) Capable parties. Both parties must be of legal age (18 years or older), and must fully understand what they are agreeing to. It is assumed that minors and insane people usually do not fully understand consequences and therefore, any contracts they sign cannot be enforced in certain circumstances.
5) Mutual assent. Both parties must intend to be bound by their contract and must agree on the essential terms.
Some contracts must be in writing in order to be recognized by some federal and state governmental entities. When contracts do not adhere to these and other standards, the likelihood of commercial litigation increases. A written agreement usually includes:
- Introductory material
- Explanation of key terms
- Purposes of the agreement
- Conditions and obligations of each party
- Assurances or warranties
- Signature block
- Exhibits or attachments
In order to make sure your agreement is legally binding and enforceable in court, it is best to have it drafted or reviewed by an experienced business attorney.