Legally Binding Contract Definition
A legally binding contract definition is not open to interpretation. A contract is a very clear and concise document that is bound by law.3 min read
2. Elements of a Contract: Offer
3. Elements of a Contract: Acceptance
Updated November 18, 2020:
A legally binding contract definition is not open to interpretation. A contract is a very clear and concise document that is bound by law. Each party makes promises to either do or sell something in exchange for money or another form of compensation. If either side breaks the promise, it can result in legal damages to the individual responsible for the breach of the contract.
What Are Legally Binding Contracts?
A contract is a legally binding agreement among at least two parties in either oral or written form. It is a set of promises made between the parties. One party promises to do something or provide a product in exchange for some kind of benefit.
Legally binding contracts are valid under federal and state laws. They include an offer, counteroffer, and ultimately a meeting of the minds. Legally binding refers to each party obeying the terms of the contract and performing the duties outlined therein. Any failure to follow through on either end of the contract can result in legal penalties.
A contract is legally binding when certain requirements are met, based on the type of agreement and the background of all parties. Some contracts are required to be in writing, including any dealing in real estate and any contract lasting more than one year.
All states have their own legal requirements that need to be consulted before entering into a contract. It is always advisable to put a legal agreement in writing even if it is not required. Oral contracts can be very hard to prove in many cases.
Elements of a Contract: Offer
There must be a clear offer to do something in a contract. The offer is generally done within a timeframe. The offer has to be very specific and not include an estimate, a proposal, a letter of intent, or otherwise.
Offers will lapse. If it expires or if an offer is withdrawn before acceptance, the contract is over. Unless specifically stated, it will stay open for a reasonable amount of time, which is left open to interpretation. It ultimately varies depending on the business and the type of contract you are dealing with.
The best way to make an offer is including an expiration date, so there is nothing left to doubt. If you want to accept an offer, do so as quickly as possible so that there is little doubt that the offer is still on the table.
Offers with expiration dates are referred to as options and are not free. Whether or not there is a payment required, when there is an option, the person offering cannot revoke the offer until the time period has expired.
If you make an offer, you can revoke it if it has not been accepted, meaning you can make the offer and if the party wants more time to review or makes a counteroffer, you can then revoke the original offer. If the party accepts your offer, you will be bound to the agreement. Any revocation has to happen before an offer is accepted.
Elements of a Contract: Acceptance
The parties to the contract have to have a meeting of the minds to form a contract. The only things offered can be accepted in a contract. Terms and conditions have to be accepted just how they are stated in a contract.
If there are any new terms suggested before the agreement is made, this is considered a counteroffer that can either be rejected or accepted. This can happen often during the negotiation of the contract.
Bargaining is a common response once an offer is made. This occurs often in business. At this point, all parties will negotiate the terms of the offer until a meeting of the minds happens. This is when an agreement is reached, and the contract can be drawn up.
It does not matter who makes the final offer. Accepting the proposal is what ends the negotiation process. Any delay in acceptance of an offer and revocation of an offer are common and can lead to conflict and confusion.
Acceptance may be given in:
- Written form
- Inferred by an action that is clearly inferring acceptance of the contract
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