When Is A Contract Binding: Everything You Need to Know
When is a contract binding? Knowing this can help you argue the validity of one before the courts.4 min read
When is a contract binding? Knowing this can help you argue the validity of one before the courts.
When is a Contract Legally Binding?
Enforceable by law, a contract is a legally binding agreement made between two or more parties. If the parties argue about the validity of a contract, the case goes before the courts, which determine if there is a breach of contract.
There are several vital pieces to a contract:
- Offer. The offer declares one of the parties will provide or do something. Most contracts include a precise time frame to complete the task. If the acceptance time expires, the offer is withdrawn.
- Acceptance. You can only accept the parts included in the contract. Before an agreement occurs, if there are any new terms to include, this is a counteroffer. You can accept in writing, verbally, or by inferring.
- Intention of legal consequences. In a contract, all parties know they must abide by the contract, and the law can enforce the agreement. The contract doesn't need to state that you acknowledge the legality of it; however, if the parties don't agree that the contract is legally binding, the contract must state this fact.
- Consideration. For the contract to be binding, it must have valuable consideration. This means that one party must do something in exchange for a benefit of value, which is the consideration.
- Terms and conditions. If there's a dispute, the courts examine the terms and conditions in the contract.
- Breach of contract. This occurs if one of the parties doesn't fulfill the terms and conditions. The courts determine if the contract suffers a breach, and one party might receive damages.
Agreement Component of a Contract
An agreement component deals with offers and counteroffers, both of which are either verbal or written. The process deals with one party offering specific terms and conditions that the other party either accepts or rejects.
If any terms or conditions change, then the offer turns into a counteroffer. Each party negotiates the terms and conditions until they agree. From there, both parties can draw up the contract.
Consideration Component of a Contract
The consideration component includes the obligations and conditions that state what each party must do. It also mentions the performance, payment terms, liabilities, and what happens if there's a breach of contract.
When Does a Contract Take Effect?
If there is no effective date listed in the contract, it becomes active when signed. If the person who signed it did not date the signature, the contract becomes active when the agreement leaves his or her hands.
However, if the contract includes an effective date, the contract becomes valid from the stated date, and not when the signatures are dated. For instance, if you sign the document today but the effective date is in a month, you must follow the agreement beginning today, even though you cannot act on it for a month.
How Long Does an Offer Stay Open?
Unless the contract includes an expiration date, the offer remains open for a reasonable amount of time. This time frame varies depending on the business and services offered. The best way to avoid confusion is to include an expiration date.
You should also accept the offer as soon as possible to make sure you take advantage of it. However, the other party, called the offeror, can revoke your offer.
If the court finds that a contract does exist, it can also determine enforcement. The court might not enforce the contract. If there's a defense to the contract, the court might find it voidable. This means one of the parties suffered from unfairness.
There are certain circumstances under which a court might refuse to enforce the contract.
- Capacity to contract. To remain bound by the contract, you must have a legal right to create a contract. This is called the capacity to contract. If you are unable to form the contract due to mental impairment or age, the contract might be invalid.
- Duress, misrepresentation, or undue influence. If anyone threatens, makes false statements, or coerces the other party, the contract is void.
- Unconscionability. This defense deals with the fairness involving the terms and process of the contract. If the contract's terms are harsh, the court might decide the contract is unconscionable.
- Public policy and illegality. The courts cannot enforce contracts that engage in illegal or immoral activity.
- Mistake. To cancel a contract due to a mistake, both parties must have committed the error. You cannot claim a mistake if you failed to read through the contract.
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