What Constitutes a Legally Binding Contract?

What is a legally binding contract? What pieces are necessary, what happens if one is absent, and can an invalid contract be repaired?

What you’ll discover:

What is a legally binding contract?
How can I tell whether a contract is legally binding?
What should I do if something mentioned is not included in the written contract?
Can I break a contract I signed without repercussions if it turns out to be invalid?
Be certain that your contracts are legally enforceable and that they benefit you.

A contract is a legally binding agreement between two (or more) people, usually including the exchange of goods or services. A verbal agreement and a handshake may legally create a contract, but written contracts—whether ink-on-paper or digital—are always preferable since they give a record of the agreement and the parties’ signatures.

Once you sign a contract, you are consenting to a legal obligation or responsibility, and you may face litigation or other negative repercussions if you do not keep your half of the bargain. Poorly worded contracts may not be worth the paper they’re written on, therefore it’s critical to understand what constitutes a legally enforceable contract before signing or presenting it to another party.

We’ll go over what makes a contract legally binding, including the parts that must be present, what to do if anything is absent from a contract, whether an invalid contract may be repaired, and more.

What is a legally binding contract?

Various legal texts divide the parts of a legally binding (or “valid”) contract in various ways, often distinguishing three to six aspects. Even if the pieces are arranged differently, reputable legal authorities typically explain the same idea. Consider the following three aspects of a legally enforceable contract for our purposes:

The contents of the agreement, especially the offer and acceptance of clear, unambiguous conditions, are referred to as the subject.
Consideration. This is the rationale or motivation for the contract. For example, a party may be motivated by money (if the transaction is monetary) or the desire to keep specific information hidden.
Capacity. Everyone signing on to the contract must be of legal age, of sound mind, and have the legal power to do so.

Consider what a legitimate contract may look like by combining these pieces. Jane is presented with a job offer from Company X. The topic contains the employment terms, such as the remuneration and the sort of labor involved (i.e., the offer). Jane has given her assent if she agrees to the conditions and signs the contract. There is appropriate consideration since Business X wants to recruit Jane and Jane wants a job and the income that comes with it. This agreement may be entered into by both parties.

How can I tell whether a contract is legally binding?

The basic answer is that a contract is legally binding if it has the criteria outlined above, although this is not always evident. For example, suppose someone prepares a contract to sell you the Brooklyn Bridge. The offer, acceptance, and even contemplation are all obvious. The person providing the bridge, however, does not truly own it and hence lacks the legal power to sell it.

Remember that legally binding contracts might nonetheless be deemed “voidable.” A voidable contract is one that is enforceable until a party actively challenges it and establishes that it has one or more legal flaws. An invalid (or void) contract is one that was never enforceable to begin with. A kid who enters a contract, for example, may have that contract cancelled if they can establish they were not legally an adult at the time it was signed.

In any case, if you have any issues or worries about whether a contract you signed (or have yet to sign) is legally binding, you should always consult with a lawyer.

What should I do if something mentioned is not included in the written contract?

If the other party removed a word covered previously in discussions by mistake or by sleight of hand, be sure you understand precisely what you’re agreeing into. In certain circumstances, the contract was prepared prematurely and does not represent the most current discussions. In any event, if anything doesn’t appear correct, don’t sign it.

You may either cancel the original contract and start anew, or use a Contract Amendment to amend one or more of its provisions. Even if the other party is really committed to maintaining things that were discussed but not included in the written contract, you don’t want to sign a legally binding contract if something isn’t quite right.

If the contract isn’t legally legitimate, but the parties are attempting to create a mutually beneficial arrangement in good faith, it’s better not to depend only on good intentions. If there is a dispute and the contract is tested, an invalid contract may or may not stand.

Can I break a contract I signed without repercussions if it turns out to be invalid?

It all depends. Although an invalid contract is normally not legally enforceable, there are circumstances in which a contract that would otherwise be unenforceable becomes enforceable due to the presence of a severability provision or another legal law. For example, a legitimate verbal contract may exist that covers some of the provisions covered by the defective written contract in issue.

As a result, recklessly breaching an invalid contract may not be wise. You may believe the contract is unlawful, yet it may be legally enforceable, putting you in a difficult situation. Similarly, you may not want to destroy bridges with the contract’s other party, particularly if it includes a person or organization with whom you plan to collaborate in the future.

Be certain that your contracts are legally enforceable and that they benefit you.

Even when we don’t “sign” a contract, our lives are plagued with contractual agreements (clicking on a web site disclaimer, for example). Knowing what constitutes a legally enforceable contract might save you time and money while avoiding unwanted consequences.