What Makes a Contract Binding

A contract is a promise the law will enforce. Most contracts are made without any paperwork, and a verbal deal over the phone or by message can bind both sides. This page explains the elements a court looks for and when writing is needed. This is general legal information, not legal advice, and the names of documents, the thresholds and the procedures differ by country and jurisdiction, so check the rules where you live.

Offer and acceptance

One side makes an offer with clear terms: what is being provided, the price and the timing. The other side accepts it exactly as made. An acceptance that changes anything is a counter-offer, which kills the original offer and starts a new one.

Silence is not acceptance, and a general enquiry is not an offer. Watch the timing as well, because an offer usually ends after a stated deadline, after a reasonable time, or once you reject or counter it.

• Offer - A clear promise to be bound on stated terms.
• Acceptance - An unqualified agreement to those exact terms.
• Counter-offer - A reply that changes the terms and ends the original offer.

Consideration, or a formal deed

Each side must give something of value, called consideration. Money and goods count, and so does work, or a promise to do something or to stop doing it. A promise made for nothing in return is usually not enforceable.

Past consideration does not count: paying for work already finished is not consideration for a fresh promise. Some jurisdictions allow a deed, a signed document in a set form, to work without consideration at all, and a promise not to sue someone can also count.

• Consideration - The value each side gives in exchange for the promise.
• Deed - A formal signed document that can bind without consideration.
• Forbearance - Giving up a right, such as the right to sue, as your side of the bargain.

Intention, capacity and fairness

Both sides must intend to create a legal relationship. Agreements between friends, or purely social arrangements, often show no such intention, and a court will not enforce them. Capacity matters too, since minors, people without mental capacity and companies acting beyond their powers can escape obligations.

A contract can be set aside if it was signed under duress, undue influence or a serious mistake. Terms that are extremely one sided, or buried in small print, can be struck out under consumer protection rules in many places.

• Duress - Pressure or threats that force someone to agree.
• Unfair terms - Contract wording a court can refuse to enforce against a consumer.
• Voidable - A contract that stands unless the wronged side cancels it.

Terms, and when writing is required

Terms come from the document itself, from what was said before signing, and from what is standard in the trade. Where a term is ambiguous, courts often read it against the party that drafted it, which is usually the business rather than the customer.

Some contracts must be written to be enforceable, commonly dealings in land, long leases, guarantees and certain consumer credit. Even where writing is not required, a written record settles disputes later, so confirm the price, the scope and the dates by email as the work goes on.

• Express term - A term written down or stated out loud.
• Implied term - A term the law or the trade treats as part of the deal.
• Guarantee - A promise to pay someone else's debt if they do not.

Breach, remedies and deadlines

Breach means a term was not performed: a late delivery, the wrong goods, or an invoice left unpaid. The usual remedy is damages, meaning money to put you in the position you would have been in if the contract had been performed as agreed.

A court can sometimes order a party to perform the contract or to stop breaching it, though that is rare. You must take reasonable steps to limit your own loss, and you cannot recover losses that were too remote from the breach. Limitation periods apply, so track the deadline from the breach or from the date you discovered it, and get a qualified lawyer or a free legal advice service if that deadline is close.

• Damages - Money awarded to compensate for the loss caused by a breach.
• Mitigation - The duty to reduce your own losses after a breach.
• Limitation period - The time limit for starting a claim.