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What is a Contract?

At the very basic level, “contracts are promises that the law will enforce.” This is the definition provided by WexDictionary run by the Cornell University Legal Information Institute.

Legally speaking, here in California and elsewhere, contracts are important precisely because they create legally enforceable obligations. We would be less concerned about promises and contracts if there was no “teeth” to them. As with many legal things, what makes a contract “enforceable” becomes complicated. At a simple level, to be enforceable under California law, a contract must derive from a “meeting of the minds,” must be supported by something valuable that is exchanged (“consideration”), there must be capacity, and there must be an offer and acceptance of that offer. If you are in need of business contracts here in San Diego, you should retain an experienced San Diego corporate attorney for help. Likewise, if you are being asked to sign a contract, seek legal counsel and advice. Here is a quick rundown on the four basic requirements for an enforceable contract:

Meeting of the Minds

Contracts are enforced by the courts here in California. If you bring an enforcement action, among the first questions that a judge will ask is “what are the mutual obligations to which the parties agreed?” To enforce a contract, there must have been a “meeting of the minds” when the contract was formed. That is, the parties must have understood what the mutual obligations were to which they were agreeing. There should not have been a mistake or misunderstanding. For example, if the contract was made about a “red automobile,” the parties should have both understood which “red automobile.” If one party thought the contract was about a Ford automobile, but the other party thought the contract was about a Chevrolet automobile, there was no “meeting of the minds.” The underlying issue here is whether the parties actually agreed. If there was a mistake, then there could have been no agreement.

Something of Value Exchanged

Next, the courts here in the Golden State require that a contract be supported by the exchange of something valuable. That value does not have to be large and can be an exchange of mutual promises. The key is that for a contract to exist, there must be an exchange; courts will not enforce simple promises. “I agree to give you a red car” is not a contract without more. That is an unenforceable promise. To make it a contract, something “more” is needed from the other party and almost anything will do. So, maybe the response is: “Sounds good and, here, I now give you one hundred dollars.” The one hundred dollars is not very much, but it is sufficient to create an enforceable contract.

Legal Capacity is Also Required

Another requirement for enforceability is what is called “legal capacity.” The law says that some people are not able to make an enforceable agreement even if they actually do so in real life. The main category here is children and teenagers. Until they turn 18, young people are not legally able to make contracts. Others without capacity are those who might be mentally impaired to such a degree that they cannot understand what it means to enter into a contract. Another example would be corporate entities that have lost their “good standing” under California law. If, for example, a California corporation fails to pay its corporate taxes or maintain annual governance with the California Secretary of State, the corporation can lose its “good standing” status. As such, that corporation no longer has the legal capacity to enter into binding contracts.

Legality is Required

Finally, to be enforceable, a contract must concern some matter that is legal. For example, courts will not enforce a contract that deals with something illegal such as an agreement to commit a crime.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.