10 Things to Know When Writing a Legally Binding Contract


Is your contract valid? If not, you could face a lawsuit or loss of income when the other party finds a loophole in your agreement.

Creating a legal contract can be a daunting task without the right experience. However, with excellent information and guidance, small business owners, freelancers, and anyone in need of a binding contract can create an ironclad document.

A legally binding contract helps protect your livelihood! Here are ten things to know when creating your next contract.

What Is a Binding Contract?

What makes a contract legally binding? Simply put, the agreement contains all of the verbiage and elements necessary to follow the law. If your contract lacks any critical details or legal phrasing, it could be considered “non-binding.”

When a contract isn’t legally binding, it no longer protects you. Whether the other party owes you property, money, or services, it’s difficult to enforce a non-binding agreement. Make sure your contract follows these tips to ensure that it’s legally binding!

  1. Put It In Writing

This aspect might seem obvious, but not every state or situation “technically” requires a written contract. However, if income, property, services, or investments are involved, it’s a good idea to create a written documents that serve as legal contracts.

Without the details, obligations, or deliverables documented in writing, you risk losing money or contracted services. We understand if “your word is your bond.” However, in most legal contract disputes, a verbal agreement won’t hold up in court.

For a legal contract between two reputable parties, each side should be willing to put everything in writing and sign it. With that document in-hand, both parties have clear protections and obligations clearly outlined in the contract.

  1. Start With a Template
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Where do you start when putting your contract in writing? If you’ve never created a contract before, a free template can help you get started.

Today, you can find a template to help with a variety of legal contact needs, including a vehicle bill of sale, employment, articles of incorporation, and more. To find a contract template that fits your needs, see the full list here.

Make sure you don’t stop at the generic information in a contract template. Customize the forms to fit your needs, then have a lawyer review your contract to make sure it’s legally binding.

  1. Include the Agreement Component

What’s the point of the contract? Define what you and the other party agree upon in the “agreement component” or the “offer” section of the contract. Depending on the relevant details, make sure to include:

  • Offered services
  • Specific money amounts
  • Property details
  • Other critical details about the offer

Both parties must agree on these details, terms, and conditions to create a legally binding contract. The review process can involve some back and forth, edits, and concessions before finalizing the text in your agreement component. However, the final contract should meet the needs and expectations of all involved parties.

  1. Add Considerations

Both parties must receive something of value to validate an agreement. Party A provides their professional services in exchange for Pary B’s payment of a specific amount.

A contract cannot be one-sided. Performing a service or a product for free can invalidate the legality of a contract. If you offer your services without compensation, there’s no need for a contract.

When both parties agree on the “give-and-take” of the partnership, include these details in the contract’s considerations. Be specific! There’s no room for ambiguity when outlining the offer or considerations in a legal agreement.

  1. Make Sure the Activity Is Legal
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This might also seem obvious, but illegal activities are not covered under a legally binding contract. Make sure the exchange of property or services is a legal relationship!

If you conduct illegal business, don’t expect the courts to enforce a contract to support a loss due to criminal activity or making an arrangement with someone involved in unlawful activities.

  1. Is Everyone Of Sound Mind?

A contract can be invalid if it was created and signed by either party during a period of duress or incapacitation. If you or the other party is not of sound mind, your contract isn’t legally binding.

Protect yourself from attempts to invalidate a contract due to incompetence. Ask a third-party or legal representation to witness the review and signing of the contract by both parties.

  1. Include a Timeline

An open-ended contract is difficult to enforce. Without deadlines or end dates, it’s challenging to make a case that you didn’t receive completed services or payment on time. A legally binding contract should include timelines, due dates, or an end date to the terms contained in the agreement.

  1. Detail Penalties For Breaching the Contract

Failing to perform or deliver according to the agreement is a breach of contract. Protecting against a breach of contract lawsuit is one of the most important reasons to make sure your contract is legal!

The document should include details about what happens if either party fails to deliver on the offer or according to the deadlines. Penalties for failing to deliver help hold both parties accountable to fulfill their responsibilities.

  1. Consider An Arbitration Clause

If one party fails to deliver according to the contract, a dispute is likely to follow. A third-party can help handle the dispute through arbitration. Including an arbitration clause helps everyone agree on how to handle the outcomes of a breached contract.

  1. Add a Force Majeure Clause
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Sometimes things happen out of everyone’s control. If an unexpected event takes place—like an act of nature or pandemic—a force majeure clause can end the contract or allow for an amendment to address the situation. This helps both parties avoid penalties or breach of contract during devasting circumstances.

Don’t Proceed Without a Legally Binding Contract

It might take some time and expert help but never proceed with a business arrangement, large purchase, or service agreement without a legally binding contract. Consult a lawyer to make sure your contract includes every element necessary for a legal agreement.

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