What Is An Enforceable Contract: 7 Critical Elements + Tips To Draft One

One vague agreement, one careless promise—and suddenly, you’re buried under a mountain of legal battles.

This was the reality for the Carbolic Smoke Ball Company in a landmark case that shaped contract law. The company boldly advertised a £100 reward to anyone who used their product as directed and still got the flu. When Mrs. Carlill, a customer, met the conditions and got sick, she sued for the reward.

Carbolic argued the ad wasn’t a serious offer, but the court disagreed. It ruled that the advertisement was a valid offer and that Mrs. Carlill had accepted it by using the product as instructed, creating an enforceable contract. 

Whether intentional or not, key elements like offer, acceptance, and consideration present in an agreement, formal or informal, create an enforceable contract. This guide will walk you through those elements, share practical tips to avoid unintentional obligations and ensure your agreements hold up in court during disputes.

What is an Enforceable Contract? 

An enforceable contract is an agreement between two or more parties that the law will recognize and uphold. 

For a contract to be enforceable, it must meet certain legal requirements like mutual agreement, consideration, legal purpose, and the capacity of all parties involved. These elements ensure that the contract is clear, fair, and binding, meaning that if one party fails to meet their obligation, the other party can seek legal remedies.

7 Elements That Make a Contract Enforceable

When a contract dispute arises, the court first examines the evidence and circumstances surrounding the agreement to know if there’s a legal case in the first place. Here are the basic elements they look out for:

1. Offer and acceptance (is there a mutual agreement?)

An enforceable contract starts with one party (offeree) making an offer and the other (offeror) accepting it (without adding any condition). This creates a mutual assent or "meeting of the minds," implying that both parties share the same understanding of the agreement. 

For an offer to be valid, it must: 

• Have Clear and Specific Terms: A vague statement like “I’ll sell you my car for a good price” isn’t enough. The offer should specify details like price, quantity, and timeframe.
• Be Communicated to the Right Person: An offer that no one hears is invalid. The offeree must be aware of the offer to be effective.
• Show Serious Intent: If you’re joking around or making an offhand comment, don’t expect it to hold up legally. Offers must show you’re serious about sealing the deal.

Acceptance is only valid when it’s:

• Unconditional: Your “yes” has to match the offer exactly, no sneaky changes, new conditions, or counteroffers. This is called the "mirror image rule".
• Clearly Communicated: The other party must know you’re on board by saying it, writing it, or showing it (like starting work).
• Within the Time Frame: If there’s a deadline, stick to it. No deadline? Then it’s about what’s reasonable.

Note that offer and acceptance can appear vague or not immediately present in certain contract types, like unilateral contracts (where one party makes a promise in exchange for the specific performance of an act) and implied contracts (where agreement is inferred from the parties' conduct or circumstances, rather than explicit communication). However, under contract law, actions and conduct often provide enough evidence of mutual assent.

2. Intention to create legal relations (are parties aware they’re legally bound?)

The intention to create legal relations ensures that both parties understand the agreement is legally binding. However, courts don’t rely solely on what the parties say; they also consider the actions and context surrounding the agreement.

As Oliver Wendell Holmes Jr., a legal legend, aptly said: 

"The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs."

In other words, the law focuses on outward expressions of intent, not hidden thoughts, promoting fairness and accountability.

When intent is presumed vs when it's not

In social or domestic settings, agreements are generally presumed not to have legal intent unless there is clear evidence to the contrary. For instance, if a friend offers to lend you their car for the weekend, it’s unlikely either of you expect to have a legal bond. Similarly, a parent promising an allowance to their child doesn't automatically create enforceable obligations unless it’s formalized in some way (like writing). 

On the flip side, agreements you make in commercial contexts are inherently presumed to have legal intent. For example, when your company hires a contractor to build a website or deliver goods, both parties expect the agreement to be enforceable. This is because trust and accountability are essential for smooth operations and providing recourse if things go awry secures both parties' interests. 

3. Consideration (does each party have something to gain?)

Consideration is the mutual exchange of value that turns a casual promise into a binding commitment. It shows that both parties are serious about their obligations and willing to be held accountable.

Consideration can take several forms, such as:

• Monetary Payment: A buyer pays a seller for goods or services
• Goods or Services: One party provides a service or delivers a product in exchange for compensation
• Refraining from an Act: A party agrees not to do something they are legally entitled to do, such as refraining from filing a lawsuit in exchange for a settlement

For consideration to be valid, it must be:

• Sufficient but Not Necessarily Adequate: Courts do not assess fairness, only that something of value has been exchanged. For example, selling a car for $1 may seem inadequate, but if both parties agree, it’s a valid consideration
• Bargained For: Both parties must agree to the terms of the exchange when forming the contract. For example, when one party promises to mow the lawn in exchange for money, the act of agreeing to mow the lawn and the promise to pay for the service constitutes the bargain. This distinguishes a contract from gifts or gratuitous promises

Consideration is invalid if:

1. Lack of Mutual Exchange: If only one party provides value, the agreement is void. For example, a promise to give a car to a friend for free, with no obligation on their part, lacks consideration
2. Past Consideration: Promises made for actions already performed are unenforceable. For example, agreeing to pay someone $500 for helping you move last week doesn’t create a binding contract because the action has been completed
3. Illusory Promises: Vague or non-committal promises lack value. For example, a statement like, “I’ll deliver goods when it’s convenient,” would not hold up in court
4. Unlawful Consideration: Promising to perform an illegal act cannot constitute valid consideration

4. Legal capacity (are parties fit to enter a contract?)

Legal capacity ensures that all parties understand and can participate in a contract. If a party lacks capacity, the contract may be void or voidable, meaning they can be enforced or cancelled based on the circumstances. 

The group of people and organizations with no legal capacity to enter a contract includes:

• Minors: In most jurisdictions, minors (under 18) lack the legal capacity to enter binding contracts due to their limited understanding of long-term implications. This protects them from being exploited. However, contracts for necessities like food, clothing, or shelter are enforceable. For example, a 17-year-old can void a gym membership unless the gym proves it is essential for their well-being

• Mentally Incapacitated Individuals: People with cognitive impairments, whether due to mental illness or intellectual disabilities may lack the mental capacity to form a valid and enforceable contract. For example, if someone with dementia signs a contract to sell her house for less than its market value, her family can challenge the contract, and the court may void it

• Intoxication: A person under the influence of alcohol can claim that they didn’t understand the agreement or that the other party took advantage of their impaired state, making the contract unenforceable

• Legal Restrictions on Organizations: A company cannot legally make agreements beyond its scope of authority, known as ultra vires acts. For example, a nonprofit organization formed for charitable purposes cannot legally enter into a contract to sell commercial products unless its governing documents allow it

If you enter a contract with a person without legal capacity before realizing it and the contract has been partially or fully performed, courts may not dismiss the case outrightly. Instead, they may order restitution to prevent unjust enrichment.  In cases of exploitation, the court may impose penalties on the party trying to enforce an unfair agreement.

5. Legality of purpose (Is the contract lawful?)

If a contract involves illegal, unethical, or improper actions, the court will not uphold it. This principle is captured by the Latin phrase “Ex turpi causa non oritur actio”, meaning “no legal remedy arises from a wrongful act.”

Here’s a breakdown:

1. Illegal Activities and Contracts: A contract is void if it involves legally prohibited activities. For example, an agreement to sell illegal drugs or counterfeit goods is automatically unenforceable because it conflicts with public interest and legal principles
2. Unconscionable Contracts: A contract may be unenforceable if it’s grossly unfair or one-sided, even if it’s not illegal. For example, a non-compete clause that prevents someone from working in their industry for 10 years across an entire country is likely unenforceable because it excessively restricts their ability to work
3. Agreements That Violate Statutes: Contracts that break statutory laws are unenforceable. This includes tax evasion, zoning violations, or breaking employment laws. For example, if a landlord rents an apartment that doesn’t meet local building codes, the rental agreement may be voided by the court

6. Required format (should the contract be written or oral?)

Contracts may be legally binding even if made verbally (e.g. hiring a plumber to fix a leak). However, verbal agreements are harder to prove because of the lack of evidence. Relying on them for high-stakes or large-scale agreements is risky. The Statute of Frauds specifies that contracts must be in writing to be legally enforceable in certain circumstances like: 

• Sale of goods priced at $500 or more
• Real estate transactions
• Agreements lasting more than one year

However, there are exceptions to this doctrine. One is partial performance. If one party has started fulfilling their obligations under an oral contract, the courts may still enforce the agreement. 

A prime example is the case of Engasser v. Jones. Here, Engasser made a down payment, took possession of the property, and started improving it, but the sellers failed to provide the necessary deed or clear the title. Despite the lack of a written contract, the court enforced the agreement because Engasser had already done his part.

Also, contracts for goods specially manufactured for a buyer and cannot be resold may be enforceable without a written agreement.

Note that a written contract doesn't only mean formal, typed documents. Informal notes, like emails or text messages, can suffice, as long as they clearly outline the agreed terms.

7. Certainty and possibility of performance (can the contract be implemented?)

For a contract to be valid and enforceable, its terms must be clear, specific, and achievable. This prevents confusion and ensures that the two parties understand their obligations. For instance, a contract term that simply states "a reasonable amount" of goods without specifying the quantity will be considered too vague to enforce.

The contract must also involve actions that are legally and practically possible. If the contract requires something impossible, such as the sale of a non-existent item, it cannot be enforced.

Ways to Ensure a Contract is Enforceable

Understanding the essential elements above is key to enforcing oral and written contracts. However, when drafting contracts, you can take practical steps to maximize their enforceability. Let's go through them:

Outline essential terms and conditions

Different contracts require specific terms and conditions to ensure their validity. For instance, a real estate contract should include the property description, purchase price, and closing date. 

Similarly, an employment contract needs details like job responsibilities, salary, and benefits to be enforceable. 

These essential terms clarify each party’s obligations and help the court determine enforceability in case of disputes.

In Wood v. Lucy, Lady Duff-Gordon for example, Lady Duff-Gordon, a fashion designer, made a deal with Wood, giving him the exclusive right to sell her designs. The contract didn’t explicitly say that Wood had to actively market the designs, but it did state that he’d get a cut of the sales.

Lady Duff-Gordon later argued that the contract was unenforceable because it didn’t specify obligations for Wood. The court ruled in favor of Wood, stating that he had an implied obligation to make efforts to sell the designs. 

While the court upheld this contract, relying on implied terms is dicey. The court may or may not interpret it in your favor. Hence, it’s best to spell out the key terms in your contract to avoid future confusion.

Use plain, unambiguous language

Jargon or unclear wording can confuse readers and cause differing interpretations.

How do you avoid ambiguity? Here are some tips from A Manual of Style for Contract Drafting:

• Limit the Use of Strings: Instead of piling on synonyms like "sell, convey, assign, transfer, and deliver," choose a single term that accurately conveys your intention. Courts interpret every word in a contract, and unnecessary strings can lead to unintended meanings or disputes.
• Reject Needless Elaboration: Avoid pairing general terms with redundant details or examples, such as "all claims whether at law or in equity" or "all taxes imposed by any federal, state, or local governmental body." Simplify to "all claims" or "any governmental body" for clarity and brevity.
• Use Consistent Language: Stick to the same terms for the same concepts throughout the contract. Inconsistent wording can confuse readers and lead to legal disputes over the intended meaning.

Confirm all parties understand and agree

Before you finalize the contract, double-check that everyone fully understands the terms and agrees to them willingly. Ask if they’ve had a chance to read it, get their feedback, and be open to making changes if needed. This eliminates the risk of unenforceability for lack of mutual consent.

If there are any tricky or harsh terms like penalties or restrictive clauses, emphasize them using the “Red Hand Rule”. It requires you to use bold text, underlining, or even red font so nobody misses them. This keeps the contract fair and clear.

Taking these steps keeps everyone on the same page and reduces disagreements.

Ensure compliance with legal requirements

Your contract must follow laws like the Uniform Commercial Code (UCC) of the jurisdiction where it will be enforced. It should also comply with industry regulations like consumer protection laws, employment laws, and real estate laws.

For example, when drafting an employment contract, you must adhere to the Fair Labor Standards Act (FLSA), which sets minimum wage, overtime pay, and child labor standards.

Seek legal advice if necessary to ensure enforceability 

Some contracts are simple enough to draft as a non-legal expert, but complex or high-stakes agreements require extra care. If you're unsure whether your contract meets all legal requirements, it’s smart to consult a legal professional.

A lawyer can review the terms, identify potential issues, and ensure the agreement aligns with relevant laws and regulations. This protects your interests and gives you peace of mind.

Ways to Enforce Contracts Using Digital Contracting Tools

Digital contracting tools don’t automatically make a contract enforceable, but they provide features that help you adhere to the principles of enforceability. For instance, Docupilot allows you to easily generate valid contracts at scale.

Here's how:

Reduce errors and ensure consistency with template and merge fields

Templates allow you to draft your contracts once and reuse them repeatedly. This reduces the chances of skipping critical terms and conditions, regardless of the legal expertise of the team member reusing them. Using templates also promotes consistent wording across your company's contracts, making interpretation straightforward.

Merge fields eliminates manual data entry by allowing you to link your template to a data source to automatically populate variable fields. This minimizes human errors that might jeopardize the contract's enforceability.

Ensure compliance with smart content blocks and conditional statements

Choose a contract generation tool that has features like smart content blocks and conditional statements.  With these features you can automate content insertion and customize contracts for specific scenarios or jurisdictions, without having to hit ctrl+F & ctrl V and blistering your fingers. 

For instance, an if-else automation can help you automatically adjust the governing law clause based on the supplier’s/vendor’s location. This eliminates the risk of mistakenly applying the wrong legal framework and ensures compliance with regional laws.

Ensure fast and legally recognized signatures with e-signatures

E-signatures speed up the signing process and ensure mutual assent. Docupilot integrates natively with e-signature platforms like DocuSign and HelloSign to allow you to automatically route contracts for signing, promoting a more efficient and effective contract generation workflow. 

Simplify Contract Enforceability With Docupilot’s Workflow Automation

Whether you're dealing with simple or complex contracts, ensuring enforceability protects you against future disputes. This strengthens your position in court, compelling the breaching party to comply or pay damages. 

To achieve an enforceable contract, focus on essential elements like mutual assent, consideration, intention to create legal relations, legal compliance, lawful purpose, and adherence to the correct format. For your written contracts, include necessary terms, use clear and specific languages, ensure all parties understand the agreement, and consult legal experts for complex contracts.

Looking for a smarter way to create enforceable contracts? Docupilot lets you generate high volumes of contracts that include essential terms, minimizes errors, and streamlines the signing process for quick mutual assent.

To experience Docupilot firsthand, sign up for a free 30-day trial today and take the first step toward a stronger, enforceable contract process!

FAQ

What does it mean if a contract is enforceable?

An enforceable contract meets legal requirements and can be upheld in court, holding all parties accountable to its terms. In case of dispute, the breaching party may be required to compensate the other party for damages.

What is an example of an unenforceable contract?

An example of an unenforceable contract involves illegal activities, such as an agreement to sell counterfeit goods.

What are the five elements of an enforceable contract?

The five elements of an enforceable contract are 

1. Offer and acceptance
2. Consideration
3. Mutual intent to create legal relations
4. Legal capacity
5. Legality of purpose 

What is an example of an enforceable agreement?

An example of an enforceable contract is a situation where both parties entering into the agreement mutually agree on the price, terms, and conditions for the sale of goods, while also adhering to all legal requirements.