What is a contract? It is an agreement between two or more persons or entities which creates a legal obligation to do, or not do, a particular thing. In addition to having legally binding contract
terms, a legally enforceable contract must have (i) a subject / offer, (ii) consideration, and (iii) two or more competent parties.
Have you ever thought about filing a lawsuit, or sued, for breach of contract? In either case, you are probably involved in a personal or business contract such as a covenant not to compete or are planning on suing the other party for failure to follow legally binding contract terms. It may not surprise you to know that few people understand the definition of what is a contract, or what it takes to make one legally enforceable.
The Bureau of Justice Statistics has found that 33 percent of plaintiffs and 66 percent of defendants lose their contract disputes at trial. Furthermore, in 2005 plaintiffs won in more than half (56%) of all general civil trials concluded in state courts.
Among all plaintiff winners the median last contract award was $28,000. Approximately 4% of all plaintiff winners won $1,000,000 or more. Cases, in general, had higher median awards ($35,000) than tort cases ($24,000).
Avoid The Most Costly Mistakes in Business Contract Litigation
- Hasty, Inadequate or Non-Existent Due Diligence in Business Contracts
- Not Defining Terms and Including Ambiguous Provisions
- Failing to Include a Choice of Law Provisions
- Entering a Contract that Was Neither Written Nor Approved
- Not Investigating and Understanding Future Business Partners
- Not understanding the remedies for breach of contract
Binding Contract? Breakdown of Legal Elements
When looking what is a binding contract, also realize that in a common law contract there is typically an agreement for a lawful purpose, entered into voluntarily by two or more parties, each of whom intends to create one or more legally binding terms and obligations between them.
When analyzing what is a contract, you must understand the legally binding contract terms and requirements.
- The elements are “offer” and “acceptance” by “competent persons” having legal capacity who exchanges “consideration” to create “mutuality of obligation.”
In litigation, proof of the elements can be writing. However, elements of a contract can be made entirely orally or by conduct. These are the least preferred because it makes the work of a contract law attorney more difficult in litigation.
- If terms are uncertain or incomplete, a court will not rule that you have reached an agreement.
- If you cannot agree on the critical and key legally binding contract terms and issues, a judge may dismiss you care because without an agreement you can have no breach.
When it comes to a commercial contract, a court may be more flexible in creating a contract. This will depend upon the facts of the case. Find out more about covenant not to compete agreements.
Legally Binding Contract Terms Consideration
When assessing what is a contract, Consideration is the cause, motive, price, reason, material benefit, right, interest, forgiveness, or whatever it is that is the reason for having an agreement.
Contracting parties must receive something of legal value in exchange for performance. This could be performing bargained-for services in business contracts, giving up a legal right or money. These are all legal binding contract terms that lawyers look for in disputes.
Colorado contract law attorneys can attest that litigation can be a very expensive way to resolve contract disputes. Just addressing defenses to a breach of contract consumes a substantial amount of financial resources in civil litigation.
You simply do not want to leave it up to a judge or jury to decide the outcome for disputes about your business contracts. Instead, you want to make sure that the problems are addressed up front, and the contract terms are written in the contract itself.
Make sure that your contract is in writing: You should never start performing without a legally binding and enforceable contract. In fact, there are certain types of contracts that must be in writing. Failure can constitute the Statute of Frauds requirements. They can include real property, certain debts, money exceeding a certain amount, or objects that won’t be performed within one year or the promisor’s lifetime.
Bottom Line: Always make sure that your agreements are in writing and meet contract law definitions. Knowing what is a contract also means knowing how to protect yourself or your business. For a complex contract, you should always consult with a contract lawyer. Call us at 1-866-601-5518 for a free initial consultation