Contracts are part of everyday life. From business agreements and leases to service contracts and purchase agreements, contracts help define what each party has promised to do and what happens if those promises are not kept.

But simply putting an agreement in writing and signing it does not automatically mean every provision will be legally enforceable.

So, what makes a contract legally enforceable?

Although contract law can vary depending on the circumstances, enforceable contracts generally require several key elements. Understanding those elements before entering into an agreement can help individuals and businesses avoid disputes and protect their interests.

1. There Must Be an Offer

A contract generally begins when one party makes an offer to another.

An offer is a sufficiently definite proposal to enter into an agreement. It should communicate what the offering party is willing to do—or refrain from doing—in exchange for something from the other party.

For example, a contractor might offer to renovate an office for $25,000. The offer could identify the work to be completed, the price, payment schedule, and completion date.

The clearer the offer, the easier it is to determine exactly what the parties intended.

2. The Offer Must Be Accepted

An offer alone does not create a contract. The other party generally must accept it.

Acceptance means agreeing to the terms of the offer. If the responding party changes material terms, the response may instead constitute a counteroffer.

For example, if a contractor offers to perform work for $25,000 and the customer responds, "I'll agree if you do it for $20,000," the customer generally has not accepted the original offer. Instead, the customer has proposed different terms.

This is one reason clear communication during contract negotiations is so important.

3. There Must Be Consideration

Another important concept is consideration.

Consideration generally means that something of legal value is exchanged between the parties. Each side typically gives or promises something as part of the bargain.

Consideration might include:

• Money
• Goods
• Services
• A promise to perform an obligation
• A promise not to do something a person otherwise has the legal right to do

For example, if a business agrees to pay a consultant $5,000 in exchange for consulting services, the payment and the promised services provide the exchange underlying the agreement.

Not every promise, standing alone, creates an enforceable contract.

4. The Parties Must Agree on the Essential Terms

A contract must generally be sufficiently definite for a court to determine what the parties actually agreed to.

Depending on the agreement, important terms may include:

• Who the parties are
• What goods or services will be provided
• Payment amounts and deadlines
• Performance obligations
• Important dates
• Duration of the agreement
• Termination rights
• Other material responsibilities of each party

If essential terms are too vague or uncertain, enforcing the agreement may become difficult.

For example, an agreement stating that one party will provide "some services later for a reasonable amount" may create significant questions about what was actually promised.

Clear contracts reduce uncertainty.

5. The Parties Must Have the Capacity to Contract

The people entering into the agreement must generally have the legal capacity to do so.

Capacity can become an issue in situations involving minors or individuals whose ability to understand the transaction is legally impaired.

For businesses, another question may be whether the person signing the agreement actually has authority to bind the company.

If someone signs on behalf of a corporation, LLC, partnership, or another organization without proper authority, enforceability issues can arise.

6. The Agreement Must Have a Lawful Purpose

Courts generally will not enforce contracts requiring illegal conduct.

Even if two people voluntarily agree to an arrangement, the agreement may be unenforceable if its purpose violates the law or applicable public policy.

This is why enforceability involves more than simply asking whether both parties signed a document.

Does a Contract Have to Be in Writing?

Not always.

Under Texas law, certain agreements can be enforceable even when they are oral. However, the Texas Statute of Frauds requires certain types of agreements to be in writing and signed by the person against whom enforcement is sought. See Texas Business & Commerce Code § 26.01.

Depending on the circumstances, this can include certain agreements involving:

• The sale of real estate
• Leases of real estate lasting longer than one year
• Agreements that cannot be performed within one year
• Certain promises to answer for another person's debt
• Certain loan agreements exceeding statutory thresholds

Other Texas statutes may impose additional writing requirements for particular transactions.

Even when the law does not require a written contract, putting an agreement in writing is often advisable because it provides evidence of what the parties agreed to.

Does a Contract Need to Be Signed?

A signature is strong evidence that a person agreed to a written contract, but whether a traditional handwritten signature is required depends on the type of agreement and applicable law.

Electronic signatures may also be legally effective in many transactions.

Additionally, in some circumstances, the parties' words, conduct, performance, or electronic communications may become relevant when determining whether an agreement exists.

The important question is often whether the evidence demonstrates that the parties intended to enter into a binding agreement.

What Can Make a Contract Unenforceable?

Even when the basic elements of a contract appear to exist, there may be defenses to enforcement.

Depending on the circumstances, potential issues can include:

• Fraud or material misrepresentation
• Duress
• Undue influence
• Mistake
• Lack of capacity
• Illegality
• Unconscionable provisions
• Failure to satisfy an applicable writing requirement
• Lack of authority to enter the agreement

The existence of one of these issues does not automatically determine the outcome. Contract disputes are highly fact-specific.

What Happens When Someone Breaches a Contract?

A breach of contract occurs when a party fails to perform an obligation required by an enforceable agreement without a legally recognized excuse.

Examples might include:

• Failing to make required payments
• Failing to deliver goods
• Failing to provide promised services
• Missing contractual deadlines
• Violating confidentiality requirements
• Improperly terminating an agreement

Depending on the contract and circumstances, potential remedies may include monetary damages or other forms of relief.

The contract itself may also contain provisions governing what happens after a breach, such as notice-and-cure requirements, attorney's fees provisions, mediation requirements, or arbitration clauses.

Why the Language of the Contract Matters

A contract does more than establish whether an agreement exists. A well-drafted contract should also anticipate what might happen if the relationship does not go according to plan.

Important provisions may address:

Payment: When is payment due, and what happens if payment is late?

Performance: What exactly is each party required to do?

Termination: When can either party end the relationship?

Liability: Who bears responsibility when something goes wrong?

Indemnification: Is one party required to protect the other from certain claims or losses?

Dispute resolution: Will disputes go to mediation, arbitration, or court?

Governing law and venue: Which state's law applies, and where will disputes be handled?

Attorney's fees: Can the prevailing party recover certain legal expenses?

A contract can be legally binding and still contain unfavorable terms. That is an important distinction.

The question should not only be "Is this contract enforceable?" but also "Does this contract adequately protect my interests?"

Why Have an Attorney Review a Contract?

Many contract problems can be addressed before anyone signs.

An attorney can review an agreement to identify unclear language, unexpected obligations, unfavorable risk allocation, missing protections, and provisions that may create problems later.

Depending on the circumstances, an attorney may also recommend revisions or negotiate terms on your behalf.

Spending time reviewing an agreement before signing it can be significantly less expensive than resolving a contract dispute afterward.

The Bottom Line

A legally enforceable contract generally requires more than a signature.

The parties typically need a valid offer and acceptance, consideration, sufficiently definite terms, legal capacity, and a lawful purpose. Certain agreements must also satisfy specific writing or signature requirements.

Most importantly, enforceable does not necessarily mean favorable.

Before signing an important agreement, make sure you understand not only whether the contract is legally binding, but also what rights, responsibilities, risks, and remedies it creates.

Brooks Legal, P.C.

At Brooks Legal, P.C., we assist individuals and businesses with contract drafting, review, and negotiation. Our goal is to help clients understand their agreements before they sign and address potential problems before they become disputes.

If you need assistance reviewing or drafting a contract, visit BrooksLegalPC.com to learn more or schedule a consultation.

Resolve Conflict to Restore Peace.

This article is for general informational purposes only and is not legal advice. Contract enforceability depends on the specific agreement, applicable law, and circumstances of each case.