When Does a Contract Become Enforceable?

Businesswoman sitting at office desk signing a contract with shallow focus on signature

While contracts can be long and complex, the essential elements of a contract are generally straightforward. In order for a contract to be enforceable, there are two fundamental components: an agreement between the parties and the exchange of something of value. In some situations, a contract must also be in writing as required by state law. When these elements are satisfied, the parties have an enforceable agreement for which recovery can be sought in the event of a breach.

Offer and acceptance. An agreement between the parties must consist of more than an informal conversation about a proposed transaction. The agreement phase must consist of an offer and an acceptance. After an offer is made (such as a proposal to supply merchandise) and an acceptance follows (such as agreement on the terms of the proposal), a contract has been created. If you change the terms of the contract or do not respond to the offer, then no contract has been created. In other circumstances, depending on the wording of the response, a counteroffer may have been extended. An offer typically includes a date upon which the offer expires, or if no date is specified, it remains open for a reasonable period of time. Until the time of acceptance, the original offer can be revoked by the maker at any time. However, once the offer is accepted, a valid contract exists and the offer cannot be rescinded.

Exchanging value or consideration. Both parties must exchange something in order for a contract to be considered valid. This is referred to as consideration and generally refers to the exchange of promises to perform an action that constitutes the agreement between the parties. While the exchange of promises typically serves as consideration for the contract, in some cases, an action by one of the parties in satisfaction of the contract can also serve as consideration. Consideration is not found where there is a one-sided promise by a single party to perform an action or give something without the return of something of value.

While mutual agreement and consideration are the essential elements of a contract, a valid agreement must also evidence competent parties and reference subject matter that can legally be the subject of a contract.

Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.

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When Does a Contract Become Enforceable?

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