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When Is a Contract Enforceable?

April 4, 2016 General

Contract Enforceable

You’ve entered into an agreement with a vendor, supplier or customer, but one of the parties refuses to honor its terms, arguing that the contract is void. What requirements must be met for a contract to be enforceable? Here’s an overview of the basic components of a valid and enforceable agreement.

There Must Be a Bargain

An enforceable contract requires at least two parties. There must be an offer by one party and it must be accepted by the other party. The agreement is typically a bilateral one—an exchange of a promise by one party for a promise by the other party. However, an agreement may be a unilateral one, where one party makes a promise in exchange for an act—an offer to pay a reward is the classic example of a unilateral contract.

There Must Be Consideration

Essentially, this requires that both parties give something of value—cash, property or labor, as a general rule. It can also be a promise not to do something.

The Parties Must Have Legal Capacity

A contract is only enforceable if both parties can be shown to understand that they have entered into a contract and they know and understand the terms of the agreement. Parties may be considered to lack the capacity to enter into a valid contract for the following reasons:

  • Mental health challenges—a person who is mentally ill may lack capacity
  • Intoxication or inebriation—a person under the influence of drugs or alcohol may not be able to enter into a legal agreement
  • Age—as a general rule, minors have the right to “disaffirm” a contract, rendering it invalid

The Parties Must Have Knowingly and Intentionally Entered into the Agreement

The law refers to this as “volition.” A party may lack volition if there is evidence of fraud or misrepresentation, coercion or undue influence.

The Subject Matter of the Contract Must Be Legal

The courts will not enforce agreements to perform illegal acts.

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