With Austin and other parts of Texas currently enjoying a growth-friendly business climate, the need for well-written, comprehensive contracts is on the rise. An ambiguous or poorly drafted contract could prove disastrous for a company.
If you are thinking of signing any sort of business agreement, then it’s a good idea to first get some feedback from a contract lawyer. With that in mind, let’s consider the basic legal elements of a contract.
Under Texas law, a binding contract typically consists of six essential elements:
- Offer and acceptance
- A legal purpose for the contract
- Mutual assent
- Sufficiently defined terms
- Competent, authorized parties to the contract
Offer and Acceptance
A contractual offer must be based on someone’s willingness to enter into a bargain, and the other party’s acceptance of the offer must not alter the offer’s terms. If acceptance changes the terms of the offer, then the offer has been rejected, or a change in the contract constitutes a counteroffer.
A contract can be legally binding only if its purpose is legal. You could not, for example, enforce a contract whose purpose is to bargain for illegal drugs or weapons.
For a contract to be enforceable, both parties must express mutual approval of the terms. This essential aspect of a contract is also sometimes called the “meeting of the minds.” Mutual assent means that both parties understand and agree to the terms of the contract. Determining mutual assent is based on what the parties said and did, not on their subjective intent.
In other words, the meeting of the minds is most effectively established in writing.
Sufficiently Defined Terms
A contract is not legally binding unless its terms are clearly defined, and courts are not able to create contracts where none exist. Keep in mind, too, that an ambiguous contract may have unforeseen consequences that negatively affect your business in years to come. A contract lawyer can help you avoid unwanted surprises.
Another important point: if you agree with someone else to negotiate a contract later, then that agreement is generally not an enforceable contract itself.
In contract law, a consideration clause essentially establishes a relationship between you and the party with whom you’re contracting. “Consideration” refers to the “benefit to the promisor or a detriment to the promisee.”
Additionally, Texas case law has established that a monetary consideration is not necessary for a contract to be enforceable, but of course contracts frequently involve monetary considerations.
Lastly, a binding contract must involve parties who are competent and authorized to enter into a contractual agreement.
Protect your interests by getting legal advice.
Your business contract should be developed specifically for your business, and cheap Internet-vended forms often prove to be more trouble than they’re worth. A contract lawyer can draft a contract that meets your business’ specific needs. For more on these matters, please see Slater Pugh Ltd. LLP’s overview of contract disputes.