Enforceable Contracts: A Beginner's Guide To Legal Agreements

Content

• What is an Enforceable Contract?
• Types of Enforceable Contracts
• What makes a contract unenforceable?
• How do you ensure your contract is enforceable?
• Clear and Precise Language
• Template Drafting
• Proper Execution and Signatures
• AI Legal Review
• Compliance Tracking
• Conclusion

Only when they are legally enforceable and legitimate do contracts safeguard the interests of the parties involved. Whether creating agreements for sales, procurement, HR, or finance purposes, businesses must ensure they will hold up in a court of law. That is when contractual rights, responsibilities, and obligations take effect. Or, as a result of unenforceable agreements, all the money and effort they put into it goes to waste. 

Therefore, knowing what makes a contract enforceable is essential in the commercial and legal worlds. It involves a lot of work, from crafting appropriate language to obtaining legitimate signatures. Our blog will delve into the key elements of enforceability, common pitfalls, and tips for ensuring contract law recognizes your agreements. 

What is an Enforceable Contract?

An enforceable contract is a legally binding agreement between two or more parties recognized by law. However, all contractual agreements, irrespective of purpose, jurisdiction, and type, must contain essential elements such as offer, acceptance, awareness, consideration, capacity, and legality to hold up in court.

This enforceability provides the involved parties with legal protection. If one party fails to fulfill contractual obligations, the other party can seek legal remedies. The court may require the breaching party to compensate for losses, specific performance, rescissions, etc. Enforceable contracts can be written, verbal, or implied; however, it’s challenging to establish rights without definite proof.

Types of Enforceable Contracts

Oral Contracts: These contractual agreements are made verbally between the parties. The lack of evidence makes it harder to prove the terms in court and ensure their enforceability. However, as long as verbal agreements contain the necessary components, many jurisdictions accept them as legally binding. Informal arrangements between friends, hiring a handyman, etc., all count as enforceable oral contracts.

Written Contracts: These are the most sought-after and reliable form of enforceable contracts. Both parties document the terms and conditions by writing them down. Contract law makes it easier to enforce them because it offers unambiguous proof of key components, rights, and obligations. To avoid legal disagreements and conflicts, leases, sales, real estate transactions, and employment agreements typically prefer written agreements.

Implied Contracts: These enforceable contracts are not explicitly stated in oral and written form. Unlike explicit agreements, these stem from the parties' circumstances and actions. Courts enforce them if they find a mutual understanding and agreement between the parties. Service, healthcare, the freelance industry, etc., all utilize implied contracts. 

What makes a contract unenforceable?

We have already discussed that the basic requirement for a contract to be enforceable is to include all the essential elements of legal validity. However, even while a contract may be legally valid, certain conditions or factors might make it unenforceable. Courts and contract law consider diverse factors to ensure that the enforcement of a contract is just, reasonable, and in line with legal standards. Here are certain circumstances that make a contractual agreement unenforceable: 

Ambiguity in Terms

It can be challenging to enforce a contract's terms and conditions that are excessively ambiguous, vague, or unclear. It might be impossible for the parties to agree on their responsibilities, rights, and tasks. It may eventually result in conflicts, disagreements, and infractions. In such cases, a court may find the contract unenforceable or reinterpret the terms. Resolving these difficulties often takes a lot of time and leads to large legal bills for the parties concerned.

Unconscionable Contracts

If upholding a legally binding contract with unfair or biased terms would shock the court's conscience, it would be deemed unenforceable. Unconscionability involves both procedural unfairness (such as deceptive practices or lack of bargaining power) and substantive unfairness (such as overly harsh terms). For instance, the California Consumer Legal Remedies Act forbids companies from including unethical contractual provisions.

Lack of Mutual Agreement or Intent

If there is evidence that one of the parties did not truly agree to the contract, such as a misunderstanding or lack of intent to be bound, the contractual agreement may not be enforceable. For example, a contract signed under duress, coercion, or fraud may not be enforceable, even if it appears valid on its face.

Public Policy Considerations

Even if a contract is legally valid, it may be unenforceable if its terms go against public policy. These social and legal guidelines prevent contracts promoting illegal activity or that are against the general welfare of society. They may not be enforced, even if all formalities are met. For instance, commercial agreements involving illegal substances, immoral activities, and unlawful acts.

Inadequate Consideration

While consideration is a key element for a contract to be valid, the courts do not typically assess whether the consideration is "adequate" (i.e., whether the exchange is fair or equivalent). However, if the consideration is so disproportionate or illusory (e.g., a promise to give nothing in return), the contract may be unenforceable.

How do you ensure your contract is enforceable?

Ensuring that a contract is enforceable is critical to protecting your interests and avoiding legal disputes. A well-drafted contract must meet legal standards and be clear, precise, and consistent with applicable laws. It starts when one party makes an offer and the other accepts it. The offer must be clear, specific, and communicated properly. The acceptance must be unequivocal and mirror the terms of the offer. Any changes or counteroffers will void the original contract unless both parties agree. Documenting the offer and acceptance process forms the foundation of a legally binding agreement. Dock 365 contract management software allows businesses to centralize the entire contracting process, enabling them to track every little detail.

1. Clear and Precise Language

As we said, contract ambiguities can lead to confusion and disputes, which may make enforcement difficult. It’s essential to use specific terms and define any potentially vague words to prevent misinterpretation. For example, instead of using general terms like “reasonable efforts,” provide clear, measurable actions that are expected from both parties. 

Additionally, all clauses must be unambiguous and written in a manner that all parties can easily understand. Contracts should avoid complex jargon and overly technical language unless necessary, as clarity is crucial for legal enforceability. By crafting the agreement in plain language, parties minimize the risk of miscommunication and guarantee everyone is on the same page. Businesses can achieve this by maintaining a clause library with clear and competent provisions.

2. Template Drafting

Using established contract templates can be a reliable method to ensure that your agreement adheres to legal standards. Templates provide a framework that includes all the necessary elements for a contract to be enforceable, such as consideration, offer, acceptance, and legal purpose. By using a trusted and proven template, businesses can avoid missing key components that might render a contract unenforceable. 

Templates also help maintain consistency, ensuring that similar contracts follow the same structure, which helps avoid errors or omissions. However, it's important to customize the template to your specific needs to reflect the unique terms of your agreement. Templates that are regularly updated based on legal changes can also help prevent the use of outdated clauses, ensuring the contract remains compliant with current law. 

3. Proper Execution and Signatures

 A contract is not legally binding until it is signed by all parties involved. In addition to signatures, ensure that the contract is dated, and all necessary parties are identified correctly. In some cases, contracts may require witnesses or notarization to be valid. Executing the contract in the proper form, with all parties' consent documented, will protect against challenges regarding authenticity.

If the contract is being executed electronically, ensure compliance with applicable e-signature laws, such as the U.S. ESIGN Act or other relevant legislation in your jurisdiction. Dock offers secure and legally binding electronic signature solutions, such as Adobe Sign, DocuSign, and Sertifi, for a painless signing process. Furthermore, when dealing with corporate entities, the signatory must be confirmed before the contract is executed to avoid the issue of a signatory lacking the legal right to bind the organization. Clear and accurate execution of the contract helps avoid complications regarding its enforceability.

4. AI Legal Review

 AI can analyze contracts for issues like ambiguities, missing clauses, or inconsistencies that may affect enforceability. Advanced AI systems can compare your contract against large databases of case law and legal principles to identify potential pitfalls or gaps in the agreement. It ensures compliance with the latest legal standards and regulations.

Dock's AI-enabled tools extract, review, and summarize huge volumes of contracts in no time. Additionally, AI can help streamline the review process by flagging clauses that might be problematic regarding enforceability or fairness, allowing legal professionals to focus on more complex issues. While AI tools should not replace human legal expertise, they can assist in identifying areas of concern, offering suggestions for improvement, and ensuring that contracts adhere to legal requirements, thus improving the chances of enforceability.

5. Compliance Tracking

Ongoing compliance tracking is essential for ensuring the contract remains enforceable throughout its duration. Even after a contract is signed, monitoring compliance with its terms is important. Failure by one party to meet their obligations may result in a breach of contract, which can lead to enforcement issues. Automated reminders, custom reports, and obligation tracking can help both parties keep track of important dates, deadlines, and deliverables specified in the agreement.

If any part of the contract requires periodic updates or renewals, compliance tracking ensures that these requirements are met on time. Proactively managing compliance strengthens contract enforceability by ensuring that all obligations are fulfilled and that any potential breaches are addressed promptly.

Conclusion

Contracts must uphold legal, ethical, organizational, and industrial standards to be enforceable. It is essential to protect the interests of all the parties involved. Manually creating and managing contractual agreements can affect their competency and accuracy. It can lead to ambiguous terms, significant errors, or an inefficient signing process; all this can result in unenforceable agreements.

Dock 365 contract management software can automate the entire contract lifecycle to guarantee enforceability. The pre-written clauses and templates standardize all legal documents. There are custom workflows to route contracts through relevant reviews and approval processes. Ultimately, contracts that proceed to the execution phase satisfy all legal requirements.