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You have probably heard people use the legal term ‘enforceable’ in various contexts, but have never fully understood its meaning. If a contract is enforceable, it means you can hold the contracting party to their promise if they fail or refuse to uphold it. You can do this by pursuing legal action, such as going to court and suing for breach of contract. In this sense, to say that you have an enforceable contract is to say that you have the backing of the law to hold someone to their promise. To help explain these ideas further, this article examines the key elements that make a contract enforceable. In the absence of these elements, you run the risk of not being able to enforce your contract.

Elements That Make a Contract ‘Enforceable’

You can compel another party to hold up their end of your agreed bargain by enforcing a contract. To create a legally enforceable contract, it needs to contain certain elements. These include:

  • an offer and acceptance of that offer;
  • consideration;
  • an intention to create a legal relationship; and 
  • certainty.

This article explains each of these elements in further detail below.

Offer and Acceptance

An offer is a written or verbal promise to exchange some form of action within a set of agreed terms. For example, in a garage sale, you might offer to pay $100 in return for a cabinet. Moreover, you will not have a contract until the opposing party communicates their acceptance of the offer. To use the same example, the person hosting the yard sale might accept your offer of $100. By doing so, they will have formalised your verbal contract. While larger business contracts are typically in writing, you still need an offer and acceptance for an enforceable contract. When it comes to accepting the terms of a contract, each party must also be legally competent and have the capacity to agree to the terms. 

For this reason, minors and people with limited mental capacity might not have the capacity to enter into all legally binding contracts.

Consideration

Another vital element of a legally enforceable contract is consideration. Put simply, consideration refers to the price paid by a party in exchange for a promise made by the other party. To use the same example as before, you pay $100 in exchange for acquiring the cabinet. Therefore, your $100 payment will amount to consideration. 

The question of whether consideration is adequate will generally not affect your contract’s enforceability. For example, it would be possible (albeit ridiculous) under a legally enforceable contract to exchange a peppercorn for something worth $1,000,000. Whilst these two objects are relatively unequal in value, it only matters that the contract is supported by sufficient consideration. Therefore, you only need to ensure that some form of exchange took place

Intention to Form Legal Relations

Additionally, both parties must intend to form a legally binding relationship. The law does not presume that both parties intended to confer mutual rights and obligations on one another merely by signing an agreement. However, the written terms of the agreement can point to the existence of both parties’ intentions to form a legal relationship. Likewise, parties’ subsequent conduct and the nature of the commercial transaction may also evidence their intention.

Certainty

Lastly, a contract needs to be certain and complete for it to be legally enforceable. After all, there will not be a ‘meeting of the minds’ between both parties if they have not agreed on the contract’s terms, or these terms are particularly vague.

When it comes to completeness, a court will consider the essential terms for the agreement that the contract needs to be enforceable. For example, if you draft a lease agreement but do not include the rental price to be paid, can you say that you still have a lease agreement? Without a rental to be paid, a lease agreement would not exist. 

Furthermore, when it comes to certainty, a court cannot enforce a contract where parties’ obligations are vague or unclear. For example, if an agreement to sell land sets the purchase price as “a reasonable sum at the time of settlement,” a court will likely consider this too uncertain to be enforceable. Ultimately, for a contract to be enforceable, you must ensure that both parties’ rights and obligations are sufficiently clear. This comes down to good draftsmanship and clarity between the parties.

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Key Takeaways

A legally enforceable contract means that you can hold the other contracting party to their promises. If the other contracting party fails or refuses to uphold their obligations, you can rely on the law to enforce your agreement. To create a legally enforceable contract, you generally need offer and acceptance, consideration, an intention to form legal relationships and certainty. If you need help with drafting an enforceable contract, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page

Frequently Asked Questions

I signed a contract but did not read its terms in full. Is it legally enforceable? 

Generally, if you sign an agreement, it will be legally enforceable regardless of whether you have read it properly or not. 

What is a void contract? 

If a court decides that a contract is void it is unenforceable. A void contract is treated as if it had never been effectively formed. 

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