A contract is an agreement between two private parties that create mutual legal obligations. Contracts may be written or oral, although written contracts are generally easier to enforce. Additionally, some types of contracts may only be legally recognized if they are in writing. Examples of contracts that must be in writing in order to be enforceable include marriage contracts, and any contract that involves a significant amount of money, such as a contract involving a sale of goods over $500.
A legally binding contract, then, is a contract agreement that is valid under both state and federal contract laws. The term legally binding refers to the requirement that both parties involved in the contract must obey the terms detailed in the contract, as well as perform their contractual duties as stated by the contract. Failure to do so could likely result in legal consequences, including but not limited to a damages award.
In order for a contract to actually be legally binding, various requirements must be met. These requirements will depend on the nature of the agreement as well as the background of each party involved. As such, not every contract is inherently legally binding. If the contract does not meet the requirements of being a valid contract, it is also not likely legally binding.
What Criteria Makes a Contract Legally Binding?
For a contract to be considered legally binding, all of the following criteria must be met:
- An offer is made, such as one party paying a specific amount of money to another party for a specific amount of goods;
- An acceptance of the offer that has been presented;
- A promise to perform, as well as a valuable consideration meaning one party promises to perform for the amount of money offered and accepted;
- A time or an event in which the performance must be made;
- The terms and conditions for the performance, such as a specific color, flavor, size, etc.; and
- The actual performance, as in the goods or services are delivered to one party and the delivering party is paid by the other party.
As previously mentioned, there are some contracts that courts will not enforce unless they are in writing. These contracts fall under the Statute of Frauds, or a body of rules which dictate the specific types of contracts that must be formed in writing or they will otherwise be invalid. The Statute of Frauds may vary from state to state, but in general, the following contracts must be in writing in order to be legally enforceable:
- Any contract that involves the sale or transfer of land;
- Any contract that involves the sale of goods exceeding $500;
- Any contract that involves one person promising to pay the debt obligations of another person;
- Any contract in which performance cannot be completed within one year of the contract’s formation;
- Any contract involving the consideration of marriage; and
- Any contract in which the executor of an estate agrees to personally pay off the debts of the estate from their own funds.
What Factors May Render a Contract Invalid, and Not Legally Binding?
There are some specific factors that could render a contract invalid, and not legally enforceable, when the contract would otherwise be legally binding. Some of the most common factors that could render a contract invalid include but are not limited to:
- Illegal Subject Matter: Contracts for illegal activities cannot be enforced in court, even if the contract meets all criteria for being otherwise legally binding. An example of this would be a contract for selling illegal drugs;
- Writing Requirement: As previously discussed, some contracts absolutely must be in writing in order to be legally binding. Additionally, some contracts will not be considered valid and legally binding if they are not signed by both parties. For these reasons, oral contracts are difficult to enforce and may not be considered to be legally binding;
- Coercion or Contract Fraud: A contract may not be legally binding if the contract was formed due to the use of force, threats of violence, or some other type of harm. If one party enters into a contract because of intentional misrepresentation or deceit from the other party, the contract is typically rendered invalid; or
- Mistakes or Unclear Terms: If one party is unclear about a contract term, or if the contract contains some mistake, the agreement could be considered to be invalid.
A broken contract may result in a breach of contract lawsuit, which could then result in a damages award to reimburse the non breaching party for any losses they experienced due to the breach.
Additionally, a judge may prescribe other remedies to compensate the non-breaching party, such as a cancellation of the contract obligations or a rewriting of the contract terms to include new changes and updates. As such, it is important that the contract is initially drafted with great care and is closely examined before being signed.
Do I Need an Attorney for Legally Binding Contracts?
You may want to consult with a skilled and knowledgeable contract attorney before entering into a contract. An experienced contact attorney can draft and review an agreement in order to ensure that it will both be recognized by a court and is legally binding. Additionally, an attorney can represent you in court as needed, should any disputes arise that could result in a lawsuit.