What Makes A Contract Valid and Legally Binding?

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People know the power a legally binding contract holds; that’s why it’s wise to read the terms and conditions before agreeing blindly to the document’s contents. Breaking the agreement can lead to legal repercussions, but a contract ensures all parties involved hold up their end of the bargain. 

Contracts that are brimming with legal jargon don’t necessarily have to be true, especially if it’s all nonsense to the other party. This begs the question: what makes a piece of paper with words legally binding? What are the elements a contract needs to be considered a valid contract? 

Two Pillars that Makes a Contract Valid and Legally Binding

Several factors can influence the binding of a contract, but it only needs two crucial elements for it to be legally valid:

  • The most important element is consent, wherein all parties must agree to the offer made and written in the contract; 
  • The contract should offer something valuable in exchange for the other party’s involvement, be it cash, services, goods, and more. 

The characteristics that make a contract legally binding may seem obvious, but in reality, discussing the terms of a contract can be messy. The parties’ conditions can get lost in translation, blurring the lines between the preliminary discussion and what should actually be set in stone in the contract. 

The last element may seem unnecessary, but a legally binding contract should always offer something valuable in exchange for the whole ordeal. Without any services, fees, and other valuables given, it will be hard to differentiate this exchange from a gift or a one-sided promise. 

Agreements: Does Accepting the Contract Always Have to be in Writing?

There’s an age-old myth that contracts should always be written on paper, or there will be no proof of the agreement between the parties. However, some situations don’t need to be documented, while others must have the contract in writing. 

The requirement depends on the specific business and your state’s laws. However, it’s much better to have all your contracts written, especially since oral agreements are nearly impossible to prove in case complications arise. 

The Bottom Line: Understanding What Makes a Contract Valid and Legally Binding 

A contract filled with legalese doesn’t make it valid, as you can find more legally binding agreements written in plain English. The ins and outs of drawing to a satisfactory conclusion between parties can often get bumpy along the way, but two things matter the most when signing a contract: ensure that all parties involved agree and that the conditions agreed on should exchange something of value. 

Are You Looking for the Best Contract Management Software for Small Businesses? 

Don’t sign blindly and explore our enterprise contract lifecycle management solutions dedicated to small and mid-sized businesses. Here at Anapact, we strive to reduce your risks, empower your team, and streamline your workflow with our contract management software. Get a demo today! 

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- About the Author

Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.