What Makes an Enforceable Contract?

Key takeaways:

• Verify that all six essential elements are present in your contracts: offer, acceptance, awareness, consideration, capacity, and legality, as missing even one element can void the entire agreement.

• Recognize common enforceability pitfalls including lack of capacity (minors, mentally incapacitated parties), illegality, duress, fraud, misrepresentation, and unconscionability, as these can render an otherwise valid contract unenforceable in court.

• Implement systematic contract management processes using digital tools to ensure enforceability at scale, as organizations typically lose five to nine percent of annual revenue due to poor contract management and 92% of contract errors are human errors.

• Understand that certain contracts must be in writing to be enforceable under the Statute of Frauds, including agreements for the sale of land or contracts that cannot be completed within one year, even though many verbal agreements are legally valid.

How confident are you in your contracts’ legal standing? Most businesses assume their carefully drafted agreements will hold up in court—but that’s not always the case. In fact, the form of an agreement is less important than its substance; in one famous case, a court even upheld a contract written on a restaurant napkin because it contained all the essential elements of a binding agreement.

Contract disputes happen. Vendors fail to deliver, payment terms get contested, or someone claims they never agreed to specific obligations. When these situations arise, the difference between an enforceable contract and one that falls apart under legal scrutiny can determine whether you recover damages, though generally a party cannot recover more than the contract’s expectancy value.

Understanding what makes a contract truly enforceable isn’t just legal knowledge—it’s business protection that affects every deal you sign.

What is an enforceable contract?

An enforceable contract is a legally binding agreement that courts will uphold and provide remedies for if breached. Unlike casual promises or informal agreements, enforceable contracts create clear legal obligations that parties must fulfill or face consequences.

Enforceability transforms a simple agreement into a powerful business tool. When your contracts are enforceable, you have legal recourse if the other party fails to meet their obligations. This protection is essential for business relationships, vendor management, and financial planning.

Not every written agreement qualifies as enforceable. Even contracts with detailed terms can fail, as enforceability can be complex enough that different federal courts have reached differing conclusions on similar cases involving the same parties. Missing key elements or improper formation can render an otherwise comprehensive contract legally worthless.

Understanding enforceability prevents costly mistakes. When businesses can’t distinguish between enforceable and unenforceable agreements, they face delayed deals, payment disputes, and potential litigation. And it has monetary impact: organizations lose five to nine percent of annual revenue due to poor contract management, according to The 2025 Legal Operations Field Guide. The solution lies in systematically ensuring your contracts meet all legal requirements.

Much of a business’s earning potential depends on enforceable contracts. Smart organizations invest time and resources into creating agreements that will hold up in court, protecting their interests and enabling confident business relationships.

How to determine if you have an enforceable contract

Contract enforceability depends on six essential legal elements working together. Each element must be present and properly formed for a court to recognize your agreement as legally binding.

Missing even one of these elements can void your entire contract. Legal teams and business stakeholders need to verify all six components during contract creation and review.

The six essential elements are offer, acceptance, awareness, consideration, capacity, and legality. These form the foundation that transforms a simple agreement into an enforceable legal obligation.

Use these six questions to evaluate your contracts. This systematic approach helps identify potential enforceability issues before they become costly problems.

1. Were both parties aware that they were entering into an agreement?

Contractual awareness means both parties understand they are creating a legally binding relationship. This awareness requirement ensures that people don’t accidentally become legally obligated through misunderstanding or deception.

• Parties must know two critical facts: the contract exists

• and they are agreeing to be legally bound by its terms. This knowledge must be genuine and voluntary, not the result of confusion or pressure.

Insufficient awareness voids the contract entirely. Courts will not enforce agreements where one party signed due to misrepresentation, fraud, or lack of understanding about the legal consequences of their signature.

2. Does the contract have an offer?

A clear offer is the starting point for any enforceable contract. Without a specific proposal that one party makes to another, there’s nothing concrete to accept or reject.

An offer doesn’t technically exist until the offeree (the party receiving the offer) has received it. Even after it’s been received, the offer can still be changed or terminated any time before acceptance.

The offeree can also make a counteroffer, which usually terminates the original offer. If there’s a counteroffer, the parties can start a new discussion about what they want to exchange.

3. Was there an acceptance of the offer?

Once the parties have established the offer, the offeree must decide whether to accept or reject the contract, either in writing or orally.

You can also communicate acceptance in the following ways:

• Conditional acceptance

• Option agreement

• Acceptance by action

Conditional acceptance occurs when the offeree accepts the offer, but certain terms still need to be fulfilled before the acceptance is finalized.

A counteroffer is usually considered a termination of the original offer, but in certain circumstances, it can be considered a form of conditional acceptance. The Universal Commercial Code (UCC), for instance, recognizes that new conditions to an offer are valid, provided that those conditions will not cause hardship or surprise and are clear to both parties.

An option agreement is a contract that keeps an offer open for a specific period. It gives the offeree time to consider the offer without the risk of it being revoked. For example, an offeree might pay for an option to keep a deal on the table while they secure financing. Unlike firm offers, option agreements usually require the offeree to pay a deposit.

Acceptance by action happens when a party accepts a contract through their behavior. For instance, if an offeror places an order to buy something at the given price, and the offeree ships the goods as a response to the order, the offeree’s action has signified acceptance of the offer.

4. Does the contract have consideration?

A valid and enforceable contract must have contractual consideration.

In the world of contracts, consideration refers to the value that the parties have agreed upon, whether that’s an action, object, or exchange of services. Consideration does not need to have a monetary component to be valid and can be money, goods, or services.

For example, if you sign a contract to buy a car from someone for $6,000, your consideration is the $6,000, while the other party’s consideration is the car.

There’s also consideration if you sign a contract promising not to repaint your house in any color but blue, and the other party pays you $700 a year to keep your promise. By promising not to do something that you would otherwise be able to do, you have provided consideration. The other party’s consideration is the $700 per year.

However, past consideration, or doing or giving something that predates the other party’s promise, is not valid. For instance, a contract is unenforceable if you promise to give $500 to another party in exchange for an act the other party did a year ago. The only exception is when there is a duty owed to a third party.

5. Did all parties have the capacity to enter into the contract?

After ensuring your contract has contractual consideration, you need to verify that each party signing the contract has the legal capacity to understand what they are getting into.

People in these categories may not have the legal capacity to enter a contract:

• Individuals under the age of 18

• Someone without a sufficient grasp of the language the contract is written in

• Someone under the influence of alcohol or drugs

• Someone with a disorder that renders them incapable of understanding the contract (e.g., dementia and certain developmental disorders)

Of course, there are exceptions and ways to get around these hurdles. For instance, a minor can have a legal personal representative, and a certified translator can provide a reliable translation of the contract.

6. Is the contract legal?

Finally, a contract has to be legal in the jurisdiction it will be operating in. A contract for an illegal product or action will not be enforced. Not knowing the law is not an excuse either: an illegal contract will still be held invalid even if the parties did not know that their contract was illegal.

To determine your contract’s legality, check all applicable local, state, and federal laws. If local, state, and federal laws don’t match up, you can reference Article I, Section 10, Clause 1 of the United States Constitution.

Beyond explicit illegality, several other circumstances will also render a contract unenforceable:

• When a contract violates public policy

• When fulfilling the contract will trigger results that are so one-sided and unjust that it will shock the court (unconscionability). In a landmark case, for example, a D.C. court invoked this doctrine to prevent the loss of a poor woman’s furniture due to an unfair installment contract.

• When unforeseeable circumstances prevent the parties from fulfilling the contract (force majeure)

• When a mistake in the contract has a major effect on the responsibilities and duties that were initially agreed upon

• When any party signs the contract due to misrepresentations or false statements, threats, or coercion

What makes contracts unenforceable?

Just as important as knowing what makes a contract stick is knowing what can make it fall apart. A contract might look official, but it can be deemed unenforceable for several reasons. This isn’t just legal trivia; it’s about spotting red flags before they become real problems.

Common reasons a contract won’t hold up in court include:

• Lack of capacity: One party wasn’t legally able to agree, like a minor or someone mentally incapacitated.

• Illegality: The contract is for an illegal act or product. You can’t enforce a contract to break the law.

• Duress or coercion: Someone was forced or threatened into signing.

• Fraud or misrepresentation: Key facts were intentionally hidden or lied about to get the other party to sign.

• Mistake: A significant mistake about a fundamental aspect of the contract was made by one or both parties.

• Unconscionability: The terms are so one-sided and unfair that it would be unjust to enforce them.

Being aware of these pitfalls is the first step to avoiding them.

Examples of enforceable and unenforceable contracts

Sometimes, the clearest way to understand a concept is to see it in action. Let’s look at a few practical examples.

Enforceable contracts often look like this:

• A signed commercial lease agreement for office space

• A sales agreement with clear terms for a software subscription

• An employment offer letter that has been signed and returned by the candidate

• A vendor agreement detailing services, payment schedule, and performance standards

Unenforceable contracts, on the other hand, might include:

• A verbal agreement to sell a piece of real estate (most states require this to be in writing under the Statute of Frauds)

• A contract signed by a 15-year-old for a car loan

• An agreement where one party promises to do something impossible or illegal

• A casual promise between friends without any consideration (nothing of value exchanged)

How to create and enforce contracts using digital contracting

Contract automation software helps ensure systematic enforceability across your entire contract portfolio. Modern platforms combine template management, workflow automation, and compliance tracking to minimize enforceability risks.

This systematic approach addresses the core challenge of maintaining enforceability at scale. Digital contracting tools like Ironclad Editor enable legal teams to build enforceability requirements directly into contract workflows. Teams can collaborate on complex agreements while maintaining consistent standards and reducing the risk of unenforceable terms.

These systems provide centralized contract management, automated alerts for key deadlines, and searchable repositories that make it easy to track obligations and ensure compliance. When enforceability is built into your contracting process, you can focus on strategic work rather than manual compliance checking.

Ironclad improves the entire contract process by centralizing agreements and automating key steps. This means all managers, stakeholders, and decision-makers can manage, edit, track, review, and manage contracts as needed without losing sight of enforceability requirements.

With Ironclad’s Workflow Designer, you’ll be able to set up a centralized location to answer all contract-related questions, as well as create contract workflows and templates that will always be in compliance with legal requirements and organizational policies.

Ironclad’s Contract Repository will allow you to secure, search, and use contract information to automate business, reduce risks, and ensure enforceability. It places all of your agreement information in one centralized hub so you can quickly find the details you need and answer contract questions in seconds.

Software and automation can help you keep track of all elements of contract enforceability, from offer to legality. With systems like Ironclad, you can minimize your risk of getting caught in a bad contract and ensure compliance across all your agreements.

Ensuring contract enforceability at scale

Knowing the six elements of an enforceable contract is one thing. Making sure every single agreement that crosses your desk meets those standards is another challenge entirely, especially as your business grows. The risk of an unenforceable contract slipping through the cracks increases with volume.

This is where moving from a manual, reactive process to a systematic, proactive one becomes critical. Instead of worrying about each individual contract, you can build a process that ensures enforceability by design. Considering that 92% of errors in contract management are human errors, as noted in the 2025 Legal Operations Field Guide, using a contract lifecycle management (CLM) platform with workflow automation and pre-approved templates means you’re starting from a compliant place every time. It allows your team to focus on strategic work, confident that the fundamentals are already handled.

AI contract analysis identifies potential enforceability issues during drafting and review. This technology can spot problematic clauses, missing terms, and compliance violations before contracts are finalized, acting as a safety net that helps you catch potential issues at scale. It’s likely why 28% of respondents identify contract review as their most impactful AI use case, according to The State of AI in Legal 2025 Report.

To learn more about creating and enforcing effective contracts, check out our guides, webinars, and more, or request a demo today. Our sandbox demo will teach you how to deploy and configure a contract template and workflow and to try out other functions. With Ironclad, you’ll be on your way to better contracting systems and more confidence in all your business agreements.

Frequently asked questions about enforceable contracts

What’s the difference between a valid and an enforceable contract?

This is a common point of confusion. A “valid” contract has all the essential elements we’ve discussed (offer, acceptance, consideration, etc.). However, an “enforceable” contract is a valid contract that a court will actually compel the parties to perform. Sometimes a valid contract might be unenforceable due to a technicality, like the statute of limitations has passed or it violates a specific public policy.

Does a contract have to be in writing to be enforceable?

Not always, but it’s highly recommended. Many types of verbal agreements are legally enforceable. However, certain contracts, like those for the sale of land or agreements that can’t be completed within a year, must be in writing to be enforceable under what’s known as the Statute of Frauds. A written contract is always easier to prove in court.

How can AI help ensure my contracts are enforceable?

AI built into a contract lifecycle management (CLM) platform can be a huge asset. It can automatically review contracts received from other companies to flag clauses that deviate from your standard positions, which often relate to legality and risk. It can also ensure that all required fields and approvals are completed before a contract is executed, reducing the risk of a simple mistake making an agreement unenforceable. It acts as a safety net, helping you catch potential issues at scale.

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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.