Contracts 101: Essential Elements and Best Practices

While a contract might seem like a fairly simple, everyday legal concept, there is more to a contract than meets the eye. There are a few essential elements that must be present in order for your contract to be considered legal and enforceable. If you miss an important element, the contract you thought you could rely on may be deemed unenforceable. Each essential element must be present in every contract you rely on. There are also a few best practices, that while not always essential, can strengthen your business contracts. It is wise to review each contract your company enters into to ensure that the essential elements and best practices are reflected. 

Contracts: The Essential Elements

To be legally enforceable, each contract must contain: 

• Offer and acceptance – Mutual assent to the contract must be expressed in the format of an offer and acceptance. An offer is what your business or the other company agrees to do for the other, while acceptance reflects the agreement of the other parties to the terms in the contract. 
• Consideration – Consideration is the valuable good or service (or money) in exchange for which the contract will be carried out. In a simple sales contract, the consideration is generally the money paid. You cannot enforce a contract in which one party agrees to perform a service or provide a good for free, without an exchange of value. 
• Capacity – Both parties must have the mental capacity to enter into a contract. This is generally met with little concern in business contracts. 
• Legality – The goods or services exchanged must be lawful. For example, a contract promising the services of a prostitute could not be enforced. 

These elements are essential, meaning they must be met for the contract to be valid.

Best Practice Tips for Drafting Contracts

While not essential, best practices may include: 

• Clarity of language – It is best to use plain English when writing a contract. The more clear your terms are, the less likely there is to be legitimate confusion about what is required of each party. Use the active voice while writing.
• Set boilerplate language – Know the terms your company will not enter into a contract without and include them in each contract. 
• Have a second reader – It can help to have a second pair of eyes read over each contract. Ask the second reader to explain what they think the contract means. If your second reader is not able to discern the proper meaning of a term or clause, consider revising it using simpler language or additional terms to clarify the meaning. 

These tips may help you improve the effectiveness of the contracts your business uses. 

Contact a Naperville Business Contracts Attorney

At the Gierach Law Firm, our experienced Naperville contracts lawyers can help you draft the strongest possible contracts for your business. To schedule an introductory consultation, please contact us at 630-756-1160.

Sources: https://www.law.cornell.edu/wex/contract