A contract is an agreement that obligates two or more parties to do something: such as pay a debt, repair a house or provide a service. **If a contract isn't written properly, it isn't legally binding.** It has to include the right elements to be valid. For example, a contract to commit an unlawful act is never legally binding.
A contract is only binding if both parties are competent -- capable of understanding the meaning and effect of the contract terms. For example, there's no contract if one party is too mentally incapacitated to understand the document. If one of the parties signs a contract while intoxicated or high, however, that may not invalidate the contract.
The law generally assumes anyone under 18 isn't competent, but there are many exceptions. A 15 year old signing a contract for lodging, for instance, may be obligated to honor it, depending on state law.
Meeting of Minds
A contract becomes legally binding when one party makes an offer and the other accepts it. If the second party refuses or makes a counter-offer, there's no contract yet. That has to wait until the first party accepts the counter-offer. Likewise, the American Bar Association says, if one or both parties misunderstands the terms, the contract may not be valid. Neither is a contract signed under coercion, as in that scenario there's no true agreement.
Exchange of Value
Promising to help a friend move does not create a contract. A binding contract, the Florida Bar says online, requires both parties offer a consideration of value: •Goods. •Services. •Money. •An agreement to refrain from a particular action, such as a non-compete contract. •A promise to provide a consideration at some future time.
The exchange is what distinguishes a legally binding contract from a random gesture or a gift.
Get It In Writing
A contract doesn't necessarily have to be in writing to be valid. The Florida Bar says most verbal contracts that have the required legal elements are binding, particularly after one party carries out her side of the deal. The Florida Bar recommends written contracts, however, as that leaves no doubt as to what the parties have agreed to. State laws do require some contracts be in writing, such as real estate sales.
- Jupiterimages/Stockbyte/Getty Images