What Is a Binding Contract?

Do you mix up a contract and an agreement sometimes? First of all, agreements refer to a mutual decision which two or more parties are in favor of. But if the law or any legal obligation is part of the picture already, then the agreement turns out as a contract. While enforcing the federal and state contract laws, you create a binding contract already. So what is the main point, you may ask? The central thought in distinguishing the difference between a binding and a non-binding contract is that binding contracts deal with legal consequences whenever any party fails to fulfill his or her obligations. The party that failed would owe a damage award to the rest that followed the agreement rigidly. Hence, there are also some elements and requirements needed on what makes a contract legally binding, which you will learn later on.

Way back in 2016, the US has at least 7.7 million business establishments wherein there is at least a single employee paid to work.

Moreover, about the Business Journals, a study confirmed that any office, shop, or factory is considered a minority regarding where most individuals do their business out of the 32.5 million total businesses in the US around 2016.

On the other hand, the Business Insider states that 91% of people just quickly agree to legal services and terms without bothering to read the details.

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What Makes Binding Contracts Important?

Binding contracts are enforceable by law, and that alone is a reason why such contracts are important. The problem with a non-binding agreement or contract is how parties can quickly get away from any violation in the written document. Some people are even too confident to trust who they partner with in business that they just decide things with a verbal agreement and a handshake. Yet, what if your partner no longer sticks to the letters of agreement? It feels like a stab in the back for them to change their mind suddenly, but you could not complain to the authorities if no legal binding were involved. For conflicts to receive resolutions according to the law, binding contracts should come to play.

What Are the Main Elements of a Contract?

Are you wondering what makes a contract valid and enforceable? Some elements shall let you determine a legal contract. Ensuring that most of the elements are present inside your contract is a big deal, or the document you have there with you might be considered as a non-binding example only. Without further ado, here are the important contract elements:

Agreement: A mutual agreement is essential for contracts to be valid because if one party disagrees with any factor, then it already becomes a disagreement. What makes up an agreement? Expect two factors for this—offer and acceptance. The offer refers to any statement, service, or anything that parties must accept to bound the agreement in a contract. An example is when an employment letter is sent; the agreement has a job offer. Therefore, unconditional acceptance will come by signing the sheet. It implies that the signee is in favor of such an offer.Capacity: While parties are bound under a contract, it does not fully mean that such individuals are locked forever without leeway. Some limitations shall be stated in the capacity too. Terms are present, but maybe some parties were forced to agree, and that is no longer acceptable. For example, children and those under 18 years old will not be expected to sign important business documents unless the terms are appropriate for them like food, clothing, education, and other necessities. The same goes for those who are incapable of deciding or thinking properly, like individuals who are mentally challenged. Consequently, things turn alright if the capacity of allowable parties and obligations is clarified.Consideration: Binding contracts cannot ever forget consideration or the exchange to consider a contract as legally binding. This exchange forms a promise. However, a good bargain of value is necessary, or one party may not experience fairness from the consideration. A concrete example is a construction contract that sells a property. A bargain of money can become mentioned for consideration instead of selling for naught. Albeit, limits also exist since considerations do not accept examples of sentimental value only and other illegal applications.Intention: Never simply assume that every party intended to be part of the contract. Maybe some were unaware of the situation as they think that it is a mere agreement. Thus, contracts require proof that the intention of partaking the deal applies to all parties for confirmation. Clarifying intentions also makes it easy to prevent scams like those who trick people into signing the contract form.

The Important Factors Affecting Contract Validity

In case you are still having a hard time deciding if your contract is valid or void, you better identify the factors affecting the validity of a contract instead. Recall in your head that binding contracts generally have the essential elements stated above. But what about if it is void? By saying that a contract is valid, what causes it to be that way? You have to specify in the first place. The factors you need to check are the following:

Subject Matter

Illegal subject matter marks as a huge no-no. Imagine heading to court while asking for validation about a contract involving illegal activities. That will only put all parties and plans in jeopardy. Be smart in deciding about the offers then because illegal drugs, for example, would not be accepted in a legally binding contract.

Writing

Requiring writing may not apply to all contracts, but writing can be your haven for possible issues. After an oral contract, how sure are you that authorities would believe any party’s claims without official records as evidence? Thankfully, written contracts are evidence themselves, particularly those with signatures inside. As much as possible, you ask for a signature just to remain sure.

Coercion is discouraged for contracts since that is a violation. As stated in the elements, there should be intent. Thus, consent stays pivotal rather than involving acts of violence, threats, or force while legally binding. Expect contracts in turning invalid if any form of deceit got practiced.

Clarity

When any factor inside a contract is unclear or contains a bunch of mistakes, you might as well change it while it is still early. There could be a possibility that a particular mistake can affect the whole plan of an agreement. Upon making contracts and agreements, you always find time to reread as if you are the other party. Would you have signed the form for being clear enough? If the answer is no, then alter it.

How Do You Process a Binding Contract?

Are you ready to make your binding contract but unsure of how to start it? Do not worry because you can slowly familiarize the entire procedure by being introduced to a step-by-step guide given below. Remember to take the steps very seriously because interests may not receive legal protection if binding contracts were processed incorrectly. When you slowly delve into each step, dealing with binding guarantees for any business will turn easier on your part. The process goes this way:

Step 1: Recognize the Full Offer

Identifying an offer is the initial step to processing your contract. Are you offering a recruiting agreement, a product for sale, a strategic alliance, or perhaps, an offer to buy? No matter what it is, you should ensure you can put it into words until discussing it turns easier in the long run. Without anything clear to offer, how else would you expect another party to accept it? When you fully understand such offers, you will be ready for any question coming from other parties as it shows how prepared you are too.

Step 2: Discuss with the Other Party

Verbal agreements can lead to an oral contract. In this scenario, parties can meet face to face to tackle the offer and possible acceptance from that offer. It would be a waste of time to immediately write a contract without knowing if the other party is interested in the offer. Thus, discussions come first. Discussions would mention the possible offer, payment plan, regulations, and more. A tip is to be in a positive relationship with whoever you discuss with. That way, a better chance of getting accepted. Moreover, you remain careful about who to trust. Once there is a mutual agreement, in the end, you receive the signal to jot down the binding contract already.

Step 3: Download and Modify a Template

Look from the sample binding contract templates and select your preferred example. You may freely modify the design, format, and details inside, too, in case you wish to establish changes. With templates available, you become easily guided on how to provide the details in the contract. But, you must be strict with every word or point you notice there to prevent because slight mistakes can turn these contracts null. You would not want that for sure.

Step 4: Place Details into Writing

What comes next is to start writing or filling out the form. Why do you need to write, you might ask? This idea is for documentation purposes. Maybe personal discussions did not elaborate on the agreement well, so the contract can further explain the rest. You keep it informative as well, similar to a detailed letter for clarifications. Others might have misheard certain words too. On that note, a written contract shall prevent misinformation since the correct spelling is present. Furthermore, these documents serve as evidence. When asked for proof, if there was any binding contract at all, then a written form is the perfect evidence.

Step 5: Require a Signature

Signatures must not be taken out of the picture. At least that part would reveal that parties fully agreed to the terms of the contract since the signature stays evident. However, is a contract binding without a signature too? Indeed, unsigned contracts may still be labeled as binding. Have you heard about the case between Anotech International U.K. Ltd versus Reveille Independent LLC? It was a perfect example of how even an unsigned contract is still considered legally binding.

Step 6: Keep the Document Notarized

To keep the contract or document available in public records, notarizing the sheet is vital. Notarized letters and forms make the processes legal until fraudulent practices become diminished. A notary public is available to review anyway if things are correct or accurate enough on the information inside. With all the elements, signatures, and other aspects that make the contract valid, rest assured the binding contract would be authenticated.

FAQs

Will a contract be valid but unenforceable?

Yes. In fact, unenforceable contracts and transactions are examples that are valid, yet the court needs not enforce those. Therefore, it can be enough to simply settle a valid agreement even without incorporating the court to enforce it.

Is a homemade contract legally binding?

Indeed, homemade contracts may still be legally binding. Any contract settling with promises from all parties can be valid and legally binding despite being homemade. However, the contract elements must at least be there.

What is a signed contract under duress?

A signed contract under duress means that coercion got involved from having the contract signed. By coercion, it implies that any force or threat happened. Such an act requires a report anyway. Expect the court to consider the contract as null automatically, especially when coercion took place.

Dealing with a contract is like dealing with a relationship. You set out terms on what is okay or not okay with you and your lover. Moreover, you trust him or her to manage certain obligations that can keep the relationship strong. If someone ever cheats, ensuring that there will be consequences is essential. A similar application can apply to binding contracts where there are terms, obligations, and legal consequences planned. A lot can change while signing a contract so be careful with what you signed up for. Now the final question is, would you continue to skip reading all the information in any agreement or contract?