The Basics of a Legally Binding Contract

Contracts are a part of our lives and have been for a long time. They govern nearly all of the services and utilities we receive at our homes as well as nearly every working business relationship. Contracts are simply agreements between two parties, albeit highly detailed and hopefully in writing. They are used between businesses, with businesses and clients, with service providers, banks, landlords, and more.

Contracts are used everywhere because unlike a normal agreement between two parties, a contract requires the parties abide by the terms of the agreement or be subject to legally remedies like damages. Therefore, in order to be effective at what they are designed to do, contracts must be legally binding and enforceable or they provide no benefit to one or more of the parties signing them.

The Difference Between a Contract (Document) and Contract (Process)

When using the term contract as a noun, it refers to the written agreements as just detailed. However, contract can also be used as a verb.

Contract as a Document – not just any written agreement is a contract. Contracts are those agreements that typically include:

• Whereas Provisions
• Stipulation of Key Terms
• Statement of Purpose/Agreement
• Obligations & Assurances
• Provisions
• Signatures
• Exhibits/Attachments

Contract as a Process – contracting someone to do work isn’t the same as simply hiring them. When you contract them, you there is a general process that is followed:

• Assessing the Deal – Both parties assess the proposed agreement and evaluate the risks and possible outcomes (and likelihood of those outcomes).
• Coming to an Agreement – Negotiations begin as the parties attempt to come to find common ground on normal contract terms concerning things like payment, time frame, etc.
• Performing the Work – After the contract is signed and in place, the parties perform whatever tasks the contract legally obligates them to perform. In the event one party fails to make good on their obligations, the other party can sue.

What Makes a Contract Legally Binding

In order for a contract to do anything expected of it, it must be legally binding. There are a few things you’ll want to include to ensure that your contracts are in fact so:

1. There must be an exchange between parties within the contract – that is that each much promise to do something for the other, or there is no basis for a legally enforceable agreement.
2. Contracts must be very clear about what they offer and whether or not the other party agrees to this offering. So be detailed and clear on what’s expected and whether or not signatures indicate acceptance.
3. Your contract needs to be signed with the party responsible for making the decisions for the business you intend to hold accountable with it. Individuals must have the authority needed to bind their company to the terms of the contract and they must be of sound mind and cannot be under the age of 18.
4. Your contract cannot violate the law for it to be legally enforceable. Simply put, a party cannot sign away their legally guaranteed rights to another. A common example of this is your contract must have an interest rate that falls within the legal limits for it to be valid.
5. There must be an agreement or “meeting of the minds” that is clearly mutual in the contract for it to be enforceable in a court of law. If the consent of one party is called into question, the contract may be ruled invalid.

Still Have Questions?

There are all kinds of federal and state regulations that govern contracts. For this reason, they can be quite complex – especially with certain consumer contracts. If you have a business contract you’d like drafted or reviewed, we’re here to help. Yoel Molina is a qualified, experienced, and highly-knowledgeable business attorney serving small to medium sized businesses throughout Florida. If you just simply have questions, give our office a call and we’d be glad to discuss your legal business contract concerns and needs.