Requirements for a Legally Enforceable Contract

The last year for which U.S. Census data is available (2010) showed there were 12.6 million job losses in the private sector. Within the same time period, the Small Business Administration collected data showing that nearly 600,000 small business “deaths” occurred. The reality of these numbers brings home an important fact: business contracts and employment contracts must be thoughtful, well-written documents that will be legally enforceable. There are several basic requirements that must be met for every contract.

Mutual Assent or AgreementRequirements

The word assent may be defined as both a noun and a verb. As a noun, its meaning is described as “a deliberate approval of known facts offered by another for agreement, consent, or acceptance.” As a verb, assent means “to agree or concur.” In both forms, mutual assent, or assent by all parties to a written agreement, is the first prerequisite of every legal contract. This is also sometimes referred to as a “meeting of the minds.” Every contract should clearly explain precisely what the parties are agreeing to, so a stranger to the agreement can read it and understand what the parties intended without resorting to outside or “parole” evidence.

Clear Terms and Definitions

All important terms use in a contract that have specific, non-ordinary meanings should be clearly defined. For example, if an agreement refers to an “effective date,” or the date on which a contract begins, that date should be specified. If a contract refers or relates to specific property, such as real estate, equipment or personal property, the property should be clearly identified. For example, real property should either be defined by a common street address, tax map parcel number, by reference to a recorded plat, or similar precise method. The term or length of time in which a contract is to be valid must be identified, either with beginning and ending dates or by reference to a specific period of time (days, months or years). Price, compensation or other monetary aspects of a contract must be clearly laid out. There should be no room for interpretation when such key terms of a contract are properly addressed. In addition, all other material aspects of an agreement such as services to be performed should be plainly spelled out, so there are no ambiguities. Again, the goal of a good contract is to clearly express the parties’ agreement so that no outsider (like a court, arbitrator or other decision-maker) must later divine what was intended at the time the contract was written.  

Compliance with Laws and Public Policy

Contractual agreements must take into consideration federal, state and local laws as well as public policy. If a business is regulated or otherwise affected by particular laws, any contract relating to that business must recognize and abide by those laws. For example, a contract relating to the sale of alcohol to the general public must ensure compliance with local liquor laws and ordinances. Any contract that is found by a court to violate or circumvent the law or public policy – for example, a contract for gambling in a state or locality where gambling is prohibited) – can be declared void and unenforceable as against public policy.

A disputed contract may well be the result of an error, carelessness, lack of thoughtfulness or planning at the time an agreement is written. In an effort to avoid or at least mitigate the effect of future disputes, careful consideration must be given when drafting and revising contracts. As many likely (and even unlikely) scenarios as possible should be considered and addressed. Even with careful planning and proper drafting of an agreement, however, contract disputes can and do still occur.

Whether you are facing business litigation or need to draft or negotiate a strong contract to protect your rights, expert and effective legal representation is advised. If you find yourself in a legal dispute, call the Atlanta business litigation and breach of contract attorneys at Brownstein & Nguyen for a free consultation.