A binding agreement is enforceable under state or federal laws. Such an agreement is “legally binding” under contract laws. For an agreement to be binding as a contract, the following factors usually need to be met:

  • Offer and acceptance: One party needs to make a clear offer, and the other needs to accept in an unambiguous way
  • Exchange of consideration: The parties need to exchange something of valuation (called “consideration”); otherwise, a one-sided exchange may be classified as a gift.
  • Some agreements require signed writing (such as the sale of a home or other real estate)

Thus, there needs to be a clear indication that the parties understand the agreement terms and are willing to enter into such an agreement under the negotiated terms.

What Factors Would Not Make an Agreement Binding?

Failure to meet any of the above requirements can make an agreement not legally binding. In addition, other factors can make an otherwise legitimate agreement into one that isn’t valid.

These include:

  • Contract fraud or coercion: The agreement can’t be entered into under conditions involving force or threats of harm
  • Mistake or misunderstanding between the parties: Sometimes, the enforceability of a contract may be affected if one or both parties don’t fully understand the terms

Contracts for illegal subject matter are not valid.

In most cases, a non-binding agreement can’t be enforced in court. If both parties consent, the court may allow them to re-write some or all of the contract to save the business relationship between the parties. In other cases, the judge may issue a damages award if one party’s conduct has caused the other party to experience losses.

What is a Breach of Contract?

A valid contract is a legally binding agreement formed by two or more parties. A contract’s main purpose is to guide the contracting parties by outlining the terms and conditions of their previously negotiated promises and ensuring they are on track to fulfill them. The terms and conditions of the contract become legally enforceable once the parties sign the final draft.

The phrase “breach of contract” refers to a legal cause of action in contract law when a party to an existing valid contract violates one of its terms or conditions.

For instance, if a party fails to fulfill a promise, interferes with another party’s ability to perform a promise, or repudiates a promise contained in the contract. Their actions may lead to a breach of contract claim. Thus, a non-breaching party may seek damages by filing a breach of contract lawsuit against the breaching party in court.

In general, there are several ways to breach a contract. Some common types of breach of contract actions include:

  • Anticipatory breach: An anticipatory breach is when a breaching party informs a non-breaching party, either implicitly or explicitly, that they will not be completing the performance of the contract or fulfilling their legal obligations under the terms of a contract. If this happens, the non-breaching party can file a lawsuit against them for breach of contract.
  • Minor or partial breach: A minor breach is when a party performs a substantial portion of the contract but fails to satisfy a minor condition. Unlike a material or total breach, a minor breach does not significantly alter the terms of a contract. For instance, an incorrect price or similar error may result in a minor breach.
  • Material or total breach: A material or total breach occurs when a breach is so substantial that it renders contract performance impossible and is significant enough to give the non-breaching party grounds to sue.

In addition, some other ways that a contract can be breached include when a contract is fraudulent, is formed illegally, contains subject matter that is unconscionable, or when there is a mutual or unilateral mistake about a material fact in the contract. The parties may also specify certain conditions that will trigger a breach of contract action.

What Are the Types of Damages Awarded in Breach of Contract Cases?

While a plaintiff in a breach of contract case must specify the damages they are seeking in their complaint, it is ultimately up to the court to decide what type of damages (if any) a plaintiff should receive.

One particular factor that a court will typically take into account above all others is whether a breach was substantial or only a partial one. The answer to this question can help a court determine the kind and amount of damages a plaintiff should recover.

The most common remedy for a breach of contract case is a monetary damages award. A simple monetary damages definition is as follows:

Monetary damages, also known as legal damages, are the amount of money awarded to the injured and prevailing party in a lawsuit.

Additionally, monetary damages apply to a broad range of legal remedies. Some types of damages and legal remedies beneath this larger category include:

  • Compensatory damages: Compensatory damages are the most popular remedy requested in breach of contract cases. Compensatory damages are meant to reimburse a non-breaching party for financial losses suffered from a contract breach. They are used to make the non-breaching party whole again and can include costs for loss of future earnings, hiring new parties to complete the contract, and so forth.
  • Restitution: A court may order the offending party to pay a plaintiff restitution. Restitution aims to restore an injured party to the position they were in before a contract was formed. Since restitution is only used to return the injured party to their initial status, additional damages, such as those for loss of earnings or profits, will not be included in this amount.
  • Liquidated damages: Some contracts contain provisions called a liquidated damages clause. At the contract signing, the parties will establish a pre-set amount of damages (i.e., liquidated damages). This pre-set amount is meant to reflect an estimate of the actual damages a party should receive in the event of a contract breach. These typically appear in contracts where the subject matter may make it harder to predict the amount of actual damages.
  • Nominal damages: Nominal damages are meant to be more of a symbol than any actual type of compensation. These are awarded when no true harm was done due to the breach of contract since nominal damages can be as low as a dollar since they represent more of a symbolic victory and matter of contract principles.
  • Quantum meruit: Quantum meruit is a Latin phrase that can essentially be translated as “what one has earned.” In contract law, it is a legal action to recover the reasonable value of services performed by one party for another. In other words, a breaching party will be liable to pay for any services completed before a contract was breached.
  • Punitive damages: A court may issue punitive damages when there is an incentive to punish and deter the offending party from re-committing such outrageous and offensive actions. To award punitive damages, the defendant must have acted in a morally reprehensible way. Accordingly, these damages are rarely awarded in contract cases, and if they are, many states have placed limits on their amounts.

Do I Need a Lawyer for Help With a Binding Agreement?

Agreements must be created so that they are binding and therefore enforceable under law. You may wish to hire a contract lawyer if you need assistance with a binding agreement. Your attorney can help you draft, review, and edit a contract document. Also, your lawyer will be able to provide representation in court if you need to file a lawsuit over a legal dispute.