A comprehensive guide to contract enforcement, with definitions and examples
Contracts make the business world go ‘round. Not all agreements are created equal, whether written, verbal, or implied.
In this guide, we’ll cover everything you need to know about contract enforcement.
Key takeaways
Contract enforceability is the keystone of every agreement.
The legal enforceability of a contract depends on several factors. These include capacity, the legality of purpose, an offer, and consideration.
After a breach, the next steps include mediation, arbitration, and legal proceedings.
Contract management software streamlines the generation of enforceable contracts.
What is an enforceable contract?
An enforceable contract is one that legally binds all parties. The contract outlines the duties, rights, and responsibilities of the parties agreeing.
Each party is legally obligated to uphold their end of the deal. Should a breach of contract occur, the breaching party incurs legal consequences.
An example of an enforceable contract may be a purchase agreement.
If the purchases fail to pay for the goods ordered, they may be in breach of contract.
Contract enforcement definition
A legal contract binds one or more parties to fulfill defined obligations.
Contact enforcement refers to the process involved to ensure those obligations are met.
Enforcement protocols include responses if a party fails to meet contract conditions.
Parties have the legal right to seek remediation. The legal system backs up all remediation of valid contracts.
What kind of contract is enforceable?
A contract is only enforceable if it meets the following criteria:
1. Both parties are aware they are entering into an agreement.
There must be specific communication of entering into a contract.
2. The contract contains an offer.
The offer must be clearly communicated from the offerer to the offeree. This can be written or verbal.
3. An indication that the offer has been accepted.
Contract enforceability depends on mutual consent or a “meeting of the minds.”
Before this happens, the accepting party may also offer:
Counteroffer- must be accepted by other parties.
Conditional acceptance- terms still to be accepted before the acceptance is finalized.
Acceptance by action- the party accepts an offer by taking logical steps or action. For example, placing a purchase order after being sent a price quote.
Option agreement- acceptance of the contract but non-binding. For instance, a contractor accepts a project agreement. However, it can back out should it fail to secure financing for the job.
4. The contract contains a consideration.
In legal terms, a consideration is a value exchange. This can be goods, services, money, or other considerations.
For example, a contract may include a fee in exchange for the other party not conducting business in a geographical area.
5. Legal capacity for all involved parties.
Each party that agrees must be of sound mind and not under duress or undue influence.
Factors that affect the legal capacity to enter into a contract include:
Whether or not the individual is 18 or older
If a party is under legal guardianship
The contract's language and each party's grasp of that language
Mental capacity impairments such as Alzheimer's or dementia
One or more parties are under the influence of drugs or alcohol
6. The legality of purpose of the contract.
All contracts constructed with illicit intent or that demand illegal behavior are null and void. Illegal terms, conditions, or clauses hurt the enforceability of the contract.
Contracts are unenforceable if either party signs due to false information or misrepresentation.
Lastly, a contract is unenforceable if it's one-sided, impossible, or “unconscionable.”
See also
8 Essential contract elements to double your document’s credibility
7. What jurisdiction applies to a contract also affects its enforceability.
Federal, state, and local laws apply to contract enforcement.
If it can be shown a contract violates any legal requirements, it will not be legally binding or enforceable.
A mistake in any of the mentioned areas results in an invalid contract.
However, such errors of contract enforceability can be eliminated with PandaDoc Contract Management Software.
What do contract enforcement laws most affect?
Businesses can only enter into agreements with one another due to contract enforcement.
Some areas where contract enforcement is extremely vital include:
Real estate
Construction and development
Government contracts
International and local trade agreements
Financial transactions
Joint ventures
Without the backing of the legal system, the activities that keep the economy churning would grind to a halt.
Why is contract enforcement important?
Contract enforcement is the keystone of legal agreements. If you remove enforceability, all contracts will fall to the ground in ruin.
As mentioned above, contract enforcement is crucial to maintaining the stability of the global economy.
It assures employers, businesses, investors, and workers.
Contract enforceability boosts the confidence of parties to enter agreements with protection.
How to enforce a contract in 7 steps
Enforcing a contract is straightforward.
Follow these steps to ensure legal protection if a contract isn’t fulfilled.
1. Review the contract
It may seem obvious, but the first thing to do is review the contract.
Give the document a thorough read-through before entering into a contract.
It’s best practice to also seek advice from legal experts before signing.
You don’t have to wait until the review process to determine whether you have a legally binding contract.
Use a solution like PandaDoc to generate legally binding documents in minutes.
2. Maintain constant communication
Once an agreement has been made, it’s best to stay in regular contact with the other parties.
Keep an open line of communication.
Monitor progress on contract obligations such as deliverables or deadlines.
This way, you will know as quickly as possible should a contract breach occur.
Likewise, maintain constant updates and feedback from your end of the agreement.
Highlight any potential issues before they snowball.
3. Keep accurate records
Hopefully, everything is going according to plan. However, you need to be prepared for the worst.
Keep all communication in written form for documentation.
See also
Exploring good documentation practices
Additionally, keep centralized records of invoices, purchase orders, reports, reviews, and other items.
Having access to comprehensive records will expedite negotiations for any contract disputes.
4. Stick to the contract
If a business contract states you are to deliver 5000 units by a set date, make sure you fulfill those terms.
Make sure you adhere to confidentiality clauses or non-disclosure agreements.
If you spot issues, attempt to negotiate new terms before breaching the contract.
A proactive approach helps you avoid legal consequences.
5. Negotiate for when the other party breaches the contract
At this point, continuous communication and diligent record-keeping have you on high alert for any issues.
As soon as you know a breach of contract has occurred, reach out and attempt to begin negotiations.
You and the other party can reach an amicable resolution with any luck.
During negotiations, you may wish to involve a neutral third party, such as a mediator or arbiter.
See also
How to negotiate a contract like a boss
6. Send a demand letter
Sometimes, the breaching party will respond less than enthusiastically about informal negotiations.
In that case, a written demand letter is the next logical step to enforcing a contract.
With your legal counsel's guidance, draft a letter demanding actions to make remediation.
This could include a partial refund or additional payment. Set a deadline. Include that failure to meet demands will result in lethal action.
7. Take enforcement to the court
If all else fails, it’s time to hand things over to the court of law.
During proceedings, you need to show evidence the other party is in breach of contract.
The breaching party will likely attempt to have the contract thrown out for various reasons.
These include capacity, legality of purpose, or misrepresentation.
Depending on the circumstances, you can seek compensation, termination, or cancelation of the contract.
See also
Breach of contract explained (with examples)
What is an example of contract enforcement?
Let’s say a government agency hires a contractor to work on a development project.
The contract outlines the contractor's payment terms, deadlines, and compliance terms.
During the project, the agency is constantly monitoring progress.
After some time, the agency notices that the project is way behind schedule. It will be impossible for the contractor to meet the deadline.
The agency opens up negotiations. A mediator gets involved, and a new deadline is permitted.
However, the contract must also take a reduction in the original contract bid.
Without enforceability, this type of dispute may have resulted in project abandonment and lost funds.
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When drafting an agreement, contract enforceability is often taken for granted.
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Frequently asked questions
Courts determine whether a contract is enforceable or not. Conditions for contract enforceability include capacity, legality of purpose, and jurisdiction compliance.
It is easier for courts to enforce when an agreement contains straightforward remedies.
If contract enforcement fails, you may no longer have any legal recourse. You can attempt to appeal the court’s decision. Other actions include using non-binding mediation or renegotiation.
If all else fails, the dispute will continue to damage reputations and use up resources.
Ensure contract enforcement with clear terms for contract breaches and outline responses. Specific terms dealing with disputes and failure to meet obligations make enforcement straightforward.
What happens next depends on whether enforcement goes to informal negotiations or a court of law.
A software developer is hired to build an app with defined capabilities. The developer meets the project deadline. However, the software is not fully capable according to contract terms. At this point, the developer is in material breach of contract.
Breach of contract falls into four categories:
Anticipatory breach- one party expects the other to breach the contract
Actual breach- the breach has already occurred and has been documented
Material breach- one party receives significantly less than what was expected or specified
Minor breach- one party failed to meet a contractual obligation, although with less significant impact on the other party
See also
What’s the real difference between a contract vs. agreement?
Disclaimer
PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDoc services are governed by our Terms of Use and Privacy Policy.
Author
Olga Asheychik
Senior Web Analytics Manager at PandaDoc
Olga is a Senior Web Analytics Manager at PandaDoc who has been working in the Digital Marketing field for the past 15 years. Olga had roles driving marketing campaigns in document automation, contracts, invoices, and agreements. In her daily life, she is a big fan of traveling and connecting with new people.
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