3 elements of a business contract. Using contracts is essential when conducting business transactions for several reasons. A well-drafted contract protects your interests and reduces the chance of a lawsuit because of a misunderstanding. A written contract, when it contains the necessary elements, is legally enforceable.
A contract that is not legally enforceable is worthless to a company. Therefore, you need to ensure that the contracts you use for your business have the basic three elements necessary for the contract to be enforceable under Oklahoma contract laws.
The Three Elements of an Enforceable Business Contract
Business contracts may contain numerous elements, depending on the purpose of the contract. However, to enforce a contract in Oklahoma, the contract must contain at least the following elements:
1. The Offer
The first element of a valid contract is an offer. One party makes an offer to another party. In a sales contract, the offer is the item being sold, such as real estate, vehicles, boats, electronics, appliances, or other tangible property. The seller is the owner of the property being transferred. The purchaser is the party who is receiving the goods.
In a service contract, the offer is for services. Service contracts can include pest control services, lawn maintenance, home security, and equipment maintenance. Employment contracts are a type of service contract whereby the employer and employee contract for specific services to be provided by the employee for the employer.
For a contract to be enforceable, the offer should specify the goods or services being offered. When a contract does not specifically identify the services or goods being offered, the contract could be void if either party chooses to dispute the contract at a later date.
2. The Acceptance
When an offer is made by one party, the offer must be accepted by the other party for the contract to be valid. While the parties may honor a verbal acceptance and a court may enforce a contract in which the offer has been accepted in a “reasonable manner” under the Uniform Commercial Code, it is usually best for both parties to sign the contract signifying the acceptance of the terms of the contract.
If the offeree (the party who is accepting the goods or services) makes a counteroffer, the offeror (the person offering the goods or services) has the option to accept the counteroffer or reject the counteroffer.
The parties must exchange consideration as an element of the offer and acceptance. The consideration may be in the form of cash for a purchase or products or services, employment for a wage, or something else of value. The key for this element is that the parties are exchanging something of value as a requirement of the offer and the acceptance.
Other Elements of a Contract
The above three elements are the required elements for a contract to be valid. However, contract law in Oklahoma is much more complex. Depending on the type of contract and the parties involved, you may be required to have other elements in the contract for the contract to be legally binding. For example, the parties entering into the contract must have the “capacity” to enter a contract. A minor could not be legally bound by a contract nor could a person who has been adjudged incompetent. They do not have the legal capacity to enter into a contract. In some cases, the law may require a contract to be in writing to be legally valid or that the signatures of the parties are witnessed by someone not a party to the contract. A contract must be for a lawful purpose to be valid.
Working With An Experienced Business Lawyer
You can find DIY contracts online for free or for purchase. However, we do not advise using DIY contracts because these contracts may not be valid under State contract laws or the contracts may not contain all elements required to enforce the agreement legally. Furthermore, even if you have the three main elements required in a contract, the other elements and terms of the contract are equally important. For example, you want to make sure that you include language to protect your best interests related to terms including:
- Return policies
- Payment terms
- Late fees
- Limitations on liability
- Indemnification agreement
- Default terms
- Governing law
- Arbitration or mediation clause
- Entire agreement
- Severability of individual provisions
- Venue for lawsuits
Davis Business Law can help you tailor your contracts to your specific needs and business transactions. By working with an experienced business lawyer to draft your business contracts, you can be assured that your business is protected to the fullest extent of the law. Learn how to write a contract and learn more about our affordable business contract services. Do not leave anything to chance when you set up your business. Careful planning in the beginning stages of a business can help you save money and prevent problems in the future.
The content on this page has been reviewed and approved by Matthew Davis: CEO of Davis Business Law.