List of Legally Binding Contract Terms
A list of legally binding contract terms contains important provisions commonly found in contracts.3 min read
2. Agreement Component
3. Intention of Legal Consequences and Consideration Components
A list of legally binding contract terms contains important provisions commonly found in contracts, which may include any of the following:
- Identity of the parties
- Purpose of the agreement
- Contractual terms
- Underlying assumptions
- Warranties and disclaimers
- Liquidated damages
- Liability limitations
- Confidentiality provision
- Governing law
- Arbitration clause
- Indemnification agreement
- Lawsuit venues
- Signatures of authorized parties
- Statement constituting entire agreement
All contracts are different, but these are common contract terms in most business contracts.
A contract is a legally binding document that's enforceable by law. Two or more parties enter into a contract.
Contracts require several elements for them to be binding, such as the following:
- Offer and acceptance
- Parties who can legally agree to terms
- Lawful subject matter
- Valuable consideration
- Mutuality of agreement and obligation
Agreements can be written or oral, depending on the contract. For example, an oral agreement involves someone hiring a taxi to drive him or her to the airport, in exchange for payment to the driver.
Sometimes, contracts must be written to be valid. This usually includes real estate contracts and agreements lasting more than a year.
The agreement component of a contract involves the following:
- A “meeting of the minds” or agreement to terms
During the agreement process, one party offers terms and conditions. The other party either accepts or rejects the terms. The offer is known as the "why" of the agreement. This states what parties agree to do or not do when they sign the agreement. The offer has to be clear so that all parties know what their responsibilities are.
There should also be a precise time frame in the contract. If there's no expiration date for an offer, it stays open for a “reasonable” amount of time. The definition of reasonable is open to interpretation. To remove any doubt, it's best to include an expiration date when making an offer.
If one party wants to accept the other's offer, it's best to do so as soon as possible. Until a party accepts, the other party has the right to revoke the offer.
Should a party want to change any terms or conditions of the offer, that offer is a counteroffer. At that point, both parties can negotiate terms and conditions until they come to an agreement.
Parties may accept verbally, in writing, or by inferring via actions that clearly show acceptance.
Acceptance has to be voluntary and cannot happen under duress if it's to be legally binding. Outside factors can't influence acceptance, and the parties will be mutually bound when they agree to the terms.
Intention of Legal Consequences and Consideration Components
When parties enter into contracts, the agreement necessitates that they intend to enter into these legally binding agreements. They must acknowledge their legal obligations to adhere to the agreement, with the understanding the contract is enforceable.
Legally binding contracts must have some type of consideration. This means all parties receive something of value, or consideration. A one-sided agreement is simply a gift and not a contract, and one-side promises are not legally enforceable.
In most cases, consideration involves one party providing a product or service. In exchange, the other party provides some type of compensation, usually monetary.
The consideration component of an agreement raises several other important provisions, such as the following:
- Conditions and obligations: Clear expectations of each party in order to fulfill its duties under the contract
- Performance: How well the parties perform their terms under the contract
- Payment: A schedule outlining how and when payments will be made, with specific payment terms
- Liabilities: A definition of each party's liability under the contract terms
- Breach of contract: The outcome if either party fails to hold up its end of the contractual agreement
It's important to be specific in drafting a contract, particularly when writing the agreement and consideration components. Without this clarity, the contractual parties may not fully understand what their actual duties and obligations are. Any confusion or ambiguity can lead to problems down the line if the parties need to enforce the provisions in the agreement.
If you need help writing a clear contract with no room for misunderstanding, it's best to consult with a legal professional.
If you need help with legally binding contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.