What Makes a Good Contract?

picture of a contract

A person who signs a contract is bound by that contract under Alabama law, even if the person signing the contract does not read the contract. This is applicable provided the contract would be otherwise enforceable. Therefore, when negotiating a deal, it is imperative to read the terms of the contract. Parkman White provides clients with contract work, from basic deals, real estate transactions, to complex corporate transactions.

Contract Basics

To qualify as an acceptable contract, a contract needs these three items:

  • Offer;
  • Acceptance;
  • Consideration

Offer and acceptance require an intent to offer and an intent to accept the terms of the contract. The offeror must manifest an intent to offer something and the offeree must manifest intent to accept the offer. To make the contract binding, the offeree must provide consideration in exchange for the offerror’s service. Consideration is the exchange of performance or promise of performance by one party to the other.

This means that, based on these contract basics, an offeror who agrees to and executes a contract wherein he or she will give up something for nothing has not created a binding contract. E.g. Tom signs a contract stating that he will give Steve his house because Steve is a nice guy but does not transfer the title to Steve. Steve sues Tom for breach of contract. Although Tom knowingly and willingly signed the contract, legally there is no valid contract.

Note that consideration need be minimal. In the above example, Steve need not provide market value for the house to create an enforceable contract; instead, Steve need provide only minimal consideration that he would otherwise not be obligated to provide.

The above discussion relates to basic contract law. When creating a contract between merchants, the Uniform Commercial Code, or UCC, would govern the rules of contract enforceability. In that instance, these basic rules may not be applicable.

Material Terms of the Contract

To be enforceable, the contract must contain all material terms of the contract. Material terms include the price, date of sale, description and condition of the item being sold, and more. The facts and circumstances of each case will determine whether a contract term is material.

Material Information

For a contract to be enforceable, the parties must disclose any material information. Non-disclosure of material information would be fraud or mistake, which would render the contract unenforceable. For example, Tom agrees to sell his Lamborghini to Steve for $80,000. Steve is a car buff and is excited to have a high-class luxury car. However, the car is actually a knock-off and not a genuine Lamborghini. Such information is material, which could disrupt enforceability of the contract. In contrast, a scratch under the passenger side front seat would probably be immaterial, so a non-disclosure would not be considered withholding material information.

If you are negotiating, seeking to negotiate or have already negotiated a contract, speak with the firm of Parkman White. Parkman White has extensive experience in contract law for both private individuals and big corporations.

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