As your business relationships become more complex, it becomes increasingly important to understand what makes a contract legally binding in Wisconsin. This will help you better assess risk, manage your liabilities, and understand your rights and obligations.
Contracts are legally enforceable promises. Laws concerning contract formation in Wisconsin are meant to facilitate commercial transactions and prevent underhanded dealing. Generally, when a contract is in place, that contract’s terms govern the relationship between the parties as it pertains to the agreement’s subject matter. What makes a contract binding comes down to whether the contract has all the necessary elements to make it enforceable.
What Does a Contract Need to Have to Be Legally Enforceable?
There must be certain elements in place for a contract to be legally enforceable. What makes a contract binding is the presence of four elements: an offer, acceptance, consideration, and a lack of defenses that would prevent the formation of a contract. For certain types of transactions, the agreement must also be in writing.
What Is an Offer?
An offer is an invitation to exchange promises or performances. It must be specific enough for the parties to understand what they must do and what they will receive in exchange. The person making the offer must communicate that offer to the other party.
What Is Acceptance?
An acceptance is the response of the party who received the offer agreeing to the offer’s terms and agreeing to be bound by those terms.
What Is Consideration?
Consideration can be a slippery concept, but generally, it means what the parties are agreeing to exchange. For example, if a house painter agrees to paint your house for $10,000, you receive the painting service, and the painter receives the money. Both the painting service and the $10,000 are consideration.
Consideration can be small. It’s the fact that the consideration is being given by one party to another, and not its intrinsic value itself, that usually determines whether something is consideration. Keep in mind that consideration can also take the form of one party agreeing not to do something. If you agree to not take an action you otherwise would be legally allowed to do, foregoing that action can be consideration. For example, agreeing not to sue someone in exchange for money is sufficient consideration to create a binding contract.
What Are Defenses that Prevent the Formation of a Contract?
Even if there is a valid offer, acceptance, and consideration, certain defenses can still prevent the formation of an enforceable contract. These defenses include the following:
- Lack of capacity,
- Fraud in the inducement, and
The elements of these defenses vary, but what they have in common is that the contract is unenforceable for one of two reasons: at least one of the parties was not capable of understanding their actions, or the parties never actually agreed to the same terms.
How Is a Contract Legally Binding in Wisconsin?
Contracts must have the four elements discussed above to be binding. Oftentimes, contracts can be oral or in writing, as long as the above elements are satisfied. However, contracts dealing with certain subjects, including land transfers and sales of goods worth $500 or more, must be in writing. This requirement is known as the Statute of Frauds. Under Wisconsin law, contracts for the transfer of land have several formal requirements that must be met for the contract to be binding. There are fewer formal requirements for a contract for the sale of goods worth $500 or more to be binding, but a written document is still required.
When Is a Contract Legal in Wisconsin?
The answer to this question will depend on the facts of your particular situation. Generally, a contract becomes binding once all of the required elements are in place. For an oral contract, this means that an offer has been accepted, and the parties have agreed to exchange consideration. If the Statute of Frauds requires the agreement to be in writing, then a contract will be binding once an offer and acceptance have been made, the parties agree to exchange of consideration, and a proper written agreement has been executed. In both cases, there must also be no defenses that would prevent the formation of a binding contract.
Even if you enter into a contract that you later believe to be flawed, you should consult with a business law attorney to plan a strategy. In such a situation, simply not performing your obligations may be a risky approach and can potentially create legal liability. You do not want to presume that a Wisconsin court will decide a contract is unenforceable only to find yourself sued for breach. If you are about to enter into a contract or need help understanding your options in one you are already in, Mallery s.c. can help you understand your rights and obligations.
Contact Mallery s.c. Today
If you are about to enter a contract, or if you are unsure about where you stand in a current contractual relationship, the experienced business law attorneys at Mallery s.c. are here to help you. The attorneys at Mallery s.c. serve the Milwaukee community with the excellence of a large firm but for a small-firm value and with a personal touch. Contact us today to find out more about how we can help you and your business.