breach of contract bookYou might think that the answer to this question is really simple - it's when both sides have a fully signed agreement (right?) - you'd be terribly mistaken.

The General Rule as to When The Switch is Flipped, and a Contract Becomes Enforceable

So, here's the rule, as recently summarized by a New York County trial court:

"The requirements for formation of an enforceable contract are: (1) at least two parties with legal capacity to contract; (2) mutual assent to the terms of an agreement with reasonably certain terms; and, (3) consideration (i.e., payment). (4 NY Prac., Com. Litig. in New York State Courts 59:12 [2d ed.], quoting Cobble Hill Nursing Home, Inc. v Henry and Warren Corp., 74 NY2d 475, 482 [1989])."

But what on earth do those factors mean?

A Further Definition of the 3 Factors that Make a Contract Enforceable

(1) Legal Capacity. The first prong, which focuses on the legal capacity to enter into the contract, is relatively straightforward, and is perhaps better clarified by the following example:

I can't sell you a property that I don't own, nor can I sell you that property if I lack the mental capacity to make the sale (no jokes, please).

(2) Mutual Assent. The second prong, which focuses on mutual assent to the terms of agreement, means that both parties reach a "meeting of the minds," i.e., they both understand what their respective obligations are, and agree to do it. As a practical and legal matter, this is referred to as an "offer and acceptance," both of which must be clearly made. Importantly, New York's courts have long held that "assent may be implied when a party has conducted himself in such a manner that his assent may fairly be inferred." The upshot is this: if there is a clear offer by one side, and the other party to the purported agreement starts acting on it in a way that clearly demonstrates their belief that there is an agreement, then guess what? You've got an enforceable contract under New York law.

(3) Consideration. The third prong, which focuses on "consideration," is legalese for making sure that there is a proverbial quid for the quo, namely, that each side is giving something and receiving something; it cannot be an entirely one-way street, or else there is no agreement insofar as the law is concerned.

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