by

Swara Ahluwalia

Swara has over six years of writing experience in the software, manufacturing, and small business segments. When she isn’t drafting solutions for her clients, you’ll find her training for her next marathon or spending time with her two daughters.

Read more...

Legally reviewed by

Allison DeSantis, J.D.

Allison is the Senior Director of Product Counsel at LegalZoom, advising and providing leadership to internal teams on the development of products and technology solutions to assist small businesses. She has spent much of her career in public service focused on business and regulatory law.

Read more...

Updated on: January 13, 2025

Read time: 9 min

Lease agreements, waivers, employment agreements, and even the terms and conditions you “agree to” while subscribing to your online streaming platform are all forms of contracts that silently define most of our personal and professional relationships. 

While contracts are designed to protect our rights, clarify responsibilities, and prevent misunderstandings, their effectiveness depends on their legality and enforceability. 

A contract is a legally binding agreement between two or more parties. It sets expectations and establishes what is required from each involved. In legal terms, a contract creates an obligation or promise to perform (or not perform) a particular duty. 

For instance, a commercial lease agreement is a contract in which a tenant promises to pay a specific amount to the landlord in exchange for using the space.

Any oversight or mistake in a contract can lead to disputes, present financial risks, and put you in a vulnerable situation.

The presence of six essential elements: offer, acceptance, awareness, considerations, capacity, and legality transform a contract from a simple agreement to a legally binding agreement. Let’s take a closer look at each. 

The starting point and foundation of all legally binding contracts is “the offer.” One party wants something (desire), like a good or service, and the other can fulfill that request (responsibility). 

The offer must be specific and include details of each party’s role and responsibility. It should also include details about the exchange of value so that everyone knows how the offer benefits each party. The value can be money or something else like an action, service, or outcome. 

The offer must be clearly communicated to the other party. Once the offer has been made, it can be revoked or altered before acceptance. 

Here’s an example of an offer. A freelance writer agrees to write “x” articles for a company in exchange for a flat fee per article. The offer will include essential details like blog topics, length of each article, deadline, and payment terms. 

Once the offer has been presented, it’s the contract acceptance or the “yes” to the specific conditions that transforms the agreement into a legally binding one. Contract acceptance can be either explicit or implicit. 

Explicit acceptance occurs when the other party makes a clear and direct statement, either written, oral, or electronic, that says, “I accept the terms.” In our freelancer example, explicit acceptance would be if the freelancer sends an email saying, “I agree to the terms.” 

Implicit acceptance, or “acceptance by action,” is when the parties involved take a step to demonstrate their acceptance of the offer. If the freelancer starts and submits a blog by the deadline, her action shows that she accepted the company’s offer, even though she didn’t explicitly say, “I agree.” 

Any conditional acceptance, like a counteroffer or modification to the terms, is considered a rejection of the original offer. For example, the company offers the freelancer $200 per blog, but the freelancer counteroffers $400 or just accepts certain terms. This is a conditional acceptance, as the original contract's terms are no longer valid.

In contract law, consideration refers to something of value, like money, goods, services, or promises that are exchanged between the parties. Think of it as a “quid pro quo” scenario that categorically makes the contract valid.

The consideration for our freelance writer would be their promise to complete the company's blogs. The company’s contractual consideration would be the amount they promise to pay the writer. 

One thing to remember is that consideration has to be something that both parties bargained for and agreed to. For example, free items are perceived as gifts and not counted as consideration because something needs to be given in return. 

Capacity alludes to a person’s contractual capacity to enter and comprehend a contract.

As per contract law, anyone who falls under the following categories is considered not to have the mental or legal capacity to validate a contract and, therefore, can't enter binding agreements:

Minors, and those under age of majority, don’t have the legal capacity to sign contracts. 

Someone with a mental illness or cognitive disorder like dementia or Alzheimer's that impedes their understanding of the terms and their implications.

Someone under the heavy influence of alcohol, drugs, or illicit substances may not fully comprehend the contract's terms. 

Someone who doesn’t genuinely doesn't understand the language used in the contract. Like a foreign national with limited knowledge of English. 

Someone under a legal guardianship or those declared incompetent by the court. 

The mutual assent and awareness elements of a contract, often called a "meeting of the minds," refer to the fact that both parties know a contract exists and willingly agree to be bound by the agreement’s general terms. This element makes a contract enforceable.

Let’s go back to our freelancer. Mutual assent of the contract is established by both parties agreeing to the scope of work, payment terms, and deadlines. The awareness element occurs when both parties know they are entering a contract and understand their responsibilities. 

If intent or awareness is lacking, for instance, the freelancer is coerced into accepting a lower pay or the company misrepresents the assignment, the contract could become null and void in court.

All contracts are subject to the jurisdiction in which it’s signed and operates from. Your contract must meet the applicable federal, state, or local laws. For instance, a company can't give a freelancer the same contract as a W-2 employee because it violates federal guidelines. 

The following scenarios also render a contract as automatically illegal: 

The above six elements are contract must-haves. But there are still other considerations you should be aware of as you attempt to build a comprehensive legally binding contract.

You may think you are set because you have included the six essential elements in your contract, and skimming the terms will suffice. However, contracts are complex legal documents, and a lot can go awry if you don’t have a legal background. Let’s understand why getting legal counsel during your contract management process is a must. 

Not all contracts automatically hold up in court; they must meet specific criteria. A contract attorney, with their in-depth knowledge of state and federal laws, can ensure your contract meets these criteria, making it legally binding. Their role in ensuring compliance and enforceability is crucial, as, without it, your document holds limited legal value and could lead to a costly battle if things go sour. 

Language clarity is paramount while drafting contractual agreements. Language ambiguities, inconsistencies, or altered conditions can mask the real intent and lead to disputes. A lawyer will review the document, highlight areas of concern, and identify vague language and gaps that can impact your legal rights and liability coverage.

Always remember that when someone presents you with a contract, they are usually prioritizing their interests first. When you get an attorney to review the proposed contract, that attorney will look at the contract from your perspective and will specifically look for any terms that may be disadvantageous or unfair to you. 

Because of their experience, lawyers are experts in predicting and handling potential contract disputes. Only a lawyer will be able to suggest modifications to a clause that will reduce the occurrence of conflict down the road. They might also advise incorporating streamlined conflict resolution methods like arbitration or mediation as a proactive way to reduce lengthy legal battles. 

Online contract templates, although affordable and convenient, can’t be tailored to your specific needs. A lawyer has the ability to draft a tailored contract that represents your unique circumstances, ensuring the contract complies with the jurisdiction it’s going to operate in. A customized contract provides the highest level of protection—something a template can’t do. 

Without an attorney, you might sign a contract that misrepresents your interests and have no way to rectify the situation because you willingly signed the agreement. The upfront investment in an attorney will save you from future anxiety and costly litigation. 

Failure to include all essential elements required in a valid contract can render the contract unenforceable. For example, failing to specify a time frame for project delivery or forgetting to identify the parties involved will result in a void contract. 

Don’t sign any legal document where you don’t understand the contract's words. For instance, if English is not your first language, and you are signing a written contract before medical surgery, ask the medical team for a translation so you can understand the document's obligations. Whenever you face a situation where you don’t understand the terms, nothing beats getting advice from legal professionals.

A breach of contract occurs when either party fails to or denies performing the duties mentioned in the contract. 

A contract can be terminated if there are legal grounds for termination, such as breach of contract or impossibility of performance. The contract can also be terminated if the original contract includes termination clauses. To terminate a contract, one party has to send the other a written contract termination notice.

Need a contract reviewed by an attorney?Get Legal Advice

This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

You may also like

What Is an Arbitration Agreement?

What Is an Independent Contractor?

What Is an Irrevocable Contract?

What Makes a Contract Legally Binding?

What Is a Promissory Note? Definition, Examples, and Uses