Wondering how to make a legally binding contract?
To be legally valid, a contract must fulfill four basic requirements:
- All signees must be above the age of consent
- All parties must agree to the contract freely
- All parties must be able to understand the agreement (legal capacity)
- The terms of the agreement must be permitted in law
This article will cover the following points of how to write a legal contract:
- What is a contract?
- What makes a contract legally binding?
- Can anyone make a legally binding contract?
- Verbal and written contracts
- How should a contract be signed?
- How to electronically sign a contract
- Create legally binding and enforceable contracts with software and templates
What is a contract?
Let’s briefly examine what contracts are before we dive into how to make a legal contract.
Contracts are formal agreements made between two or more parties.
They specify the terms of an agreement — the expectations of all parties and what each party will receive in return for meeting these expectations.
Business contracts are standard legal documents.
As such, ensuring that a contract is a binding agreement in the eyes of the law is important for everyone involved.
Any dispute or breach of contract can be resolved quickly with an enforceable contract.
This is particularly the case for individuals and small business owners who don’t have access to funds to access expensive ongoing legal expertise.
What makes a contract legally binding?
So, what makes a contract legal?
The basic fundamentals of a legally binding contract are that it must include an offer outlining what will be provided and an acceptance of that offer.
There must also be something of value exchanged, which could be a service, sale of goods, money, or even a promise to provide one of these things.
There are many other factors involved in determining whether or not a given contract is legally valid, and state laws regarding legality can vary, but the main essential elements of a contract comprise the following:
- The parties involved are all over the legal age of consent.
- All parties agree to the contract terms and the offer they outline of their own free will and in good faith.
- All parties are deemed mentally able (mental capacity) to understand and fulfill the terms of the contract.
- Everything in the agreement is within the law – for example, a contract would be immediately void if it involved hiring a hitman.
- All parties have sufficient time to review the contract and make any counter-offers if necessary.
All of these requirements apply to oral contracts as well as written ones.
Because of issues around the proof, it is advisable to create a written contract wherever possible.
That said, oral agreements are legal contracts in the usual sense.
Here is a legally binding contract example in the form of a sales contract template.
Can anyone make a legally binding contract?
Yes, almost anyone can make a legally binding contract between two parties if all the abovementioned conditions are met.
The contract must involve legal subject matter, and both parties must freely consent to the terms.
However, remember that contract laws can vary by jurisdiction, so it’s vital to be aware of the specific rules in your location.
Consulting with a legal professional when dealing with complex or significant contracts is always recommended.
Verbal and written contracts
It’s possible to have either a verbal or a written contract agreement, which can technically be legal.
There are many cases of verbal contracts holding up in court, but it is not guaranteed.
It is inadvisable to rely on verbal contracts as they are far more difficult to prove, making them a much riskier option even if the agreement is casual in nature.
Some legal binding contracts need to be written, so it’s almost always a good idea to have something in writing if you want it to hold up in court.
Written contracts are the surest way to ensure your agreement is legally valid.
Something that is always necessary with a written contract is for all parties to sign it.
A signature is a legally recognized way to formally accept the contents of the contract and bind yourself to its obligations.
At the end of the day, legal services and lawyers are the people who best understand how to make a contract legally valid.
They can navigate the often confusing legalese that is typically used in contracts.
How should a contract be signed?
A contract can be signed either physically or electronically, and these signatures are an essential part of the contract.
Physical signatures used to be the only way of signing, and it’s still the most common method.
However, it’s quite a time-consuming process, and in today’s interconnected world, it’s often highly impractical.
Imagine a company doing business with another in a different country or state.
They would need to print a contract, physically sign it, and then either send it in the mail for the other party to sign or scan it and email it to them.
Not only does this take a lot of time, but it also introduces the opportunity for human error, things getting misplaced or lost in the mail, and can be expensive.
Electronic signatures, while quite a recent development in the history of contracts are more straightforward and practical in many ways.
Documents can be stored digitally without printing and signed with a mouse click or tap on a screen.
Security is also much more robust, as the signatures and contracts can be encrypted and stored securely.
To top it off, electronic signatures, or eSignatures, are legally recognized in many countries (including the US, United Kingdom, Australia, Canada, Switzerland, South Africa, etc.) as a valid way to sign contracts.
How to electronically sign a contract
There are now various ways to sign documents electronically.
Using Microsoft Word’s built-in eSignature feature is one popular way, but it can be pretty complicated to figure out, and Word falls short functionally when it comes to sending contracts, following up, and tracking them once they’re sent.
The easiest and most practical way is to use a service specifically designed for contract signing, such as PandaDoc.
These services make it as easy as possible to add your signature to a wide array of different types of contracts and create a formal mutual agreement.
Create legally binding and enforceable contracts
As a general rule, your contract is almost certainly going to stand up to legal action if you remember these takeaway points:
- Follow the basic structure of a contract
- Draw the contract up in written form
- Consult a law firm specializing in contract law to confirm everything for you
- Ask every party to sign the contract
A good piece of advice is to use an eSignature to make life easier for yourself and everyone involved.
Don’t forget to use one of PandaDoc’s legal agreement templates to make creating a legally binding contract simple.
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