5 Ways to Tell if a Contract is Legally Binding


Contracts are a tricky business. While the name alone might lead you to believe that all contracts are somehow bound by law, that’s simply not the case. When people are asked to sign and initial paperwork, it often causes them to stop and at least think about what they’re agreeing to. No one wants to be blindly talked into a contract, so it’s important to know every detail to prevent the possibility of breaching the said contract. 

If you’re not sure whether a contract is binding or not, here are some things to keep in mind. 

1. If any of the six elements are missing, the contract cannot be enforced

A couple of the elements will be further discussed on their own below, but there are six critical parts of a contract that have to be in place in order for it to be considered legal:

  • Capacity (competence to execute or agree to a contract)
  • Offer (terms and conditions)
  • Acceptance (are the terms accepted by everyone?)
  • Legality
  • Consideration (one thing for another)
  • Mutuality (both/all parties are bound)

If these six elements are present, then it is definitely a legally binding contract. If, however, any one of these elements is missing, you may have a case for nullifying the contract or proving that it is invalid or not legally binding. 

If you’re the one trying to prove the contract is legal, make sure that you have all of your ducks in a row before you start handing people documents to sign. 

2. Capacity, or contractual competence, must be proven

Someone can’t sign a contract if they aren’t capable of understanding the terms they’re agreeing to. This is a critical part of any contract and is often one of the first things people will go after if they think a contract or legal agreement is skeptical or subject to question. 

Mental capacity, persons under the influence, and even minors are elements that are involved in deeming someone to have the “capacity” to execute and agree to a contract. Essentially, that means that unless someone is an adult of clear and sound mind, they probably don’t have a legal leg to stand on when it comes to signing a contract. 

3. If a notary or witness was required, it’s probably legit

Of course, we’re not talking about signing a napkin in front of the waitress over a business coffee—some contracts require witnesses, or may even be notarized to improve their validity and prove that the agreements were signed by both parties involved. 

If you sign a contract without a witness or others present, there’s always the risk that the other person could claim some kind of duress on your behalf that caused them to agree to terms that they “didn’t like,” for one example. A signature is a signature, but if it can be put to question, there could be a bigger problem on the horizon. 

4. Does the content of the contract match the law?

Sometimes, people will try to include terms or language that doesn’t agree with the law in their contracts, hoping that no one will notice. If the subject matter isn’t actually legal, contracts are not going to be valid. For example, you can’t have someone sign a contract saying they’ll commit a crime for you because that crime is against the law. Therefore, the contract would be null and void, and evidence in a criminal case. 

5. Is something of value exchanged?

In order for any contract to be legal, the parties have to be in mutual agreement and they have to be exchanging something for another thing. For example, someone might sign a contract to buy a car with an auto loan, in which the contract commits them to making monthly payments to repay the loan. 

You simply can’t write a contract saying you are due reparations for helping out a friend when you offered to help in the first place. Or, perhaps you’re trying to claim a contract on existing duties that you already handle—this doesn’t work. Contracts will only be legal if they’re considered to have a mutual exchange of value, either physically or monetarily. 

Check with Your Lawyer 

Ultimately, you’ll want to consult with your own attorney when you are faced with a contract so that you don’t accidentally enter into a binding agreement that is not favorable without realizing it. 

If you don’t have a lawyer, you should probably get to know one. In today’s business world, you will find cause for an attorney in several different instances and it’s helpful to have one on retainer and readily available if you need them. They’ll be able to point you in the right direction and ensure that you’re not getting into a contract that isn’t legal or that manipulates the law. And trust us when we tell you that you’ll find many more uses for a lawyer in the future of your business endeavors, so don’t feel like it’s a one-time wasted effort. 

Speaking of help, ask what Smith.ai can do

While you’re dealing with all the legal jargon, who’s handling the phone calls? When you partner with a 24/7 answering service like the virtual receptionists at Smith.ai, you can trust that you’ll never miss a thing. We can handle answering calls around the clock, along with live website chat, lead intake, appointment scheduling, and so much more. 

If you really want to free up some time, ask how we can help with your outbound sales and outreach campaigns to get the leads in the first place. And of course, we’ll help you create the perfect strategy to handle all of it, no matter what your needs might be. 

To learn more, schedule a consultation to discuss what the virtual receptionists at Smith.ai can do for your business. You can also reach us at hello@smith.ai or (650) 727-6484. 

Business Education
Written by Samir Sampat

Samir Sampat is a Marketing Manager with Smith.ai. He has experience working with businesses of all sizes focusing on marketing, communications, and business development.

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