Legally Binding Document: Everything You Need to Know
A legally binding document is an agreement between two parties where specific actions are prohibited or required on behalf of one or both of the parties.3 min read
Updated July 8, 2020:
A legally binding document is an agreement that has been made between two parties where specific actions are prohibited or required on behalf of one or both of the parties. As an example, an apartment lease is a legally binding contract, as the lessee and lessor agree to a certain number of conditions when they sign this document. The lessor often agrees to give the apartment for a specific length of time in a certain condition, while the lessee agrees to pay a set amount for rent each month and not participate in any behaviors that are destructive.
In order for a contract or agreement to be legally binding, there needs to be consideration, which is when both parties acknowledge they know what they're agreeing to. If a person gets tricked, coerced, or forced into an agreement, this won't be considered legally binding.
What Makes up a Legally Binding Document?
A document that's legally binding can be upheld in court. Any agreement that two parties make can be legally enforced, whether it's written or verbal. A signed document is important to have since it provides proof that an agreement exists and shows both parties agreed to identical terms. If there isn't a document, it's hard to say what conditions they agreed upon in case both parties have a different opinion. This document is also considered the contract.
When both parties acknowledge and agree to the contract terms, the following happens:
- Their signature is proof of their acceptance of the contract.
- The signature binds both parties to the terms.
- Getting the contract notarized proves each party signed the document (since no one can claim their signature was forged).
- The document has the notary's mark and seal.
A document that's notarized is a secure way to sign the contract, but the document will still be legally binding without being notarized. It's important to be careful how you word the document, as you'll need to include all essential terms. If you forget to include an item in the document, it doesn't exist in the agreement. The wording clarifies what each party is legally bound to do. If a contract is poorly worded, it can lead to misinterpretation. The contract will still be legally binding, but the judge can interpret the words on their own terms.
Agreement Component of a Contract
The agreement part of a contract includes counteroffers, offers, and a meeting of the minds. If you take a taxi to the airport, you're verbally agreeing that you'll pay a certain amount when you get to your final destination. However, certain contracts must be written agreements, such as real estate contracts or contracts with a length longer than a year. Each state has its own legal requirements, and these should be consulted to see what regulations need to be in a contract you're making.
During the agreement process, one party offers certain terms and conditions that the other party either accepts or rejects. If one party decides to change its terms or conditions, the offer then becomes a counteroffer. The parties can then change any condition or term of the offer. They will continue negotiating the terms until they have a meeting of the minds, which is when they've come to an agreement and a contract can be formed.
Both parties need to be competent in order to enter into the agreement. They cannot be under the influence of alcohol or drugs, have an unsound mind, or under the age of 18. In order to enter into the contract, they need to have legal power. This pertains in particular to people with an outside interest, such as a third party or a company.
Consideration Component of a Contract
There needs to be consideration in order for an agreement to be binding and legal. This means every party needs to receive something of value or consideration. If not, it will be considered a gift instead of a contract. Being promised a gift isn't binding depending on what the circumstances are. Consideration is where one party gives something, such as a service or product, and the other party gives monetary compensation in exchange.
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