What makes a contract legally binding?

If two or more parties contract into some agreement, what legal authority says that it is binding–and that if one party attempts to break the contract that the other parties can take legal action?

The contract usually states what jurisdiction has authority.


If one party agrees to perform services or provide goods for another party, and said services or goods are not illegal, then the two parties have entered into a legally binding contract. That’s all that is required–no writing, no signing, and no witnesses. The exception is the sale of real estate and securities.

Oh, I forgot to add that common law says that is a contract. No legal body is required to endorse it to make it legal.

Contracts can be oral or written, except for certain contracts such as the sale of land which the Statute of Frauds requires be in writing. It is a common misunderstanding, but an incorrect one, that for a contract to be enforced in a court of law it must be in writing. Not so. It may be more difficult to prove such a contract, but if proven it will be enforced.

Contracts reflect an agreement to exchange consideration between parties. There must be an offer, an acceptance, and valid consideration. Consideration is the fancy word given to what each party brings to the other in the contract. Thus, in a contract for you to buy my home, the consideration which I bring to the contract is the house, and the consideration which you bring to the contract is the purchase money. Consideration must run two ways; a contract where only one party is to provide consideration is not considered to be a true contract and will not be enforced (absent certain exceptions).

Contracts are based on mutual agreement, and if it is determined that there has been no actual agreement, a contract will not be enforced. Thus, “mutual mistake” can be a reason not to enforce a contract. Other reasons not to enforce a contract would include fraud, or duress.

-Melin, Esq.

“I’ll never argue with a lawyer again.” – The Devil Himself.

The only thing to add to Melin’s very good Nutshell answer (God, I wish that had been sufficient for the CA bar examiners!) is to note that the parties can choose the law which will apply to the contract, where there is more than one possible set of applicable laws. Thus, a Delaware corporation contracting with a California person can execute a contract choosing either state’s laws as governing the contract. If, for instance, the choice is Delaware’s laws, even if suit is later brought in California court, Delaware contract law would be used to determine the outcome.

Just a few more comments:

The contract is not the agreement between the parties, the contract only documents or records the agreement (a wise thing to do).

Think “offer” and “acceptance”. Be very careful negotiating an agreement because, if you make a clear offer of terms and the other party accepts it, you are bound. Carefully worded conditional offers and conditional acceptances are a negotiating strategy.

Contracts with very unbalanced considerations are not contracts, they are “gifts”. The considerations from the parties must be reasonably balanced in a valid contract. That’s why, if you sell your car to your brother for a dollar, the contract should say “for the sum of one dollar and other valuable consideration”.

Severe penalties that are unreasonable can invalidate a contract.

The contract doesn’t exist that can’t be broken. You just better be aware of what it’s going to cost you to break it.

For a further twist, while “consideration” is also needed for contracts in the civil law systems, it has a meaning other than the quid pro quo of the common law. It means more the reason for one person to enter into the contract. So, “natural love and affection” can be a consideration in civil law contracts. This means, for example, a gift can be a contract, enforcable at law, in ways that are not available in the common law system.

To answer the OP, in the civil systems the rules of contract may be set out in a statute, such as a Civil Code. This gives them binding force just like any other statute.

There are also civil law jurisdictions where the civil law is customary and unwritten, akin to the common law, rather than statute-based. Scotland is one example of a civil law jurisdiction that does not have a civil code. The courts recognize the rules and enforce them - that is where their authority comes from.

Hi jti! I notice that your profile shows that you are in Canada. I’m wondering if this might reflect a difference in Canadian law and the usual rule in the United States. Generally speaking, under the United States common law system, a gift, or a promise to make a gift, is not an enforceable contract. There may be circumstances under which a court will enforce the gift, but that generally requires extraordinary circumstances justifying application of the rule of promissory estoppel. “Love and affection” do not constitute valid consideration for a contract under our system, at least as I learned it in law school and practice it in California. Tell me more about the rule in Canada!


It must also be for a legal act. A contract to murder or beat up someone is not valid.

And while we are on the subject, just how valid are oral contracts. Oh I know they are but are they really enforceable? As often quoted an oral contract is only worth the paper it is written on.

Um, Mark? Go back and read the first paragraph in the second post on this thread . . . .

Oral contracts (except for certain specified ones) are valid and enforceable. Ask Lee Marvin.


Just don’t be surprised if he doesn’t respond immediately. :slight_smile:

In response to Al Zheimers:

A ‘contract’ is not a piece of paper any more than a ‘constitution’ is. The ‘contract’ is the agreement. Read any book on contract law.

ANY contract can be broken. All you have to do is fail to perform. The issue then is one of damages.

SOMETIMES, the remedy for a failure to perform is ‘specific performance.’ This means that the party that has failed to do as promised is required to do so. It is rarely used as a remedy, and if I remember correctly (been 13 years since the bar exam) mostly when the consideration involves unique pieces of property.

Otherwise, the remedy for failure to perform will be money damages.

Writing in a contract that ‘other valuable consideration’ is being offered is irrelevant if there is no such consideration.

Just a few more comments.

Al Zheimers said:

Not exactly. The contract IS the agreement between the parties. The document that you sign only documents or records the agreement. So it would be possible for a court to determine that the actual terms of the contract are different than those reduced to writing. However, this would be unlikely. The parol evidence rule prohibits the introduction of extrinsic evidence to prove that the terms of a contract are other than those reflected in a writing. In other words, you generally have to stay within the four corners of the document if a written contract exists.

Another widely held misconception about contract is that courts will require someone to perform a contracted for service if you prove a breach. For example, I contract with you to install a fence on my property. I later change my mind and refuse to let you install the fence. I have breached the contract.

A court will not order me to perform on the contract (that is, allow you to install the fence on my property). Instead, you are entitled to your expectancy – that is, what you expected to receive if both of us had performed. Note that you are not entitled to the full contract price, only to the amount you would have profited.

Requiring someone to perform a breached contract is called “specific performance” and is only required where the subject of the contract is unique or where money damages would not adequately compensate the non-breaching party. Usually, specific performance is only ordered in contracts to sell real estate.

OK, was that fun or what? Someday, I’ll tell you all about the Rule Against Perpetuities. WOO HOO!

Plunging like stones from a slingshot on Mars.

The only thing I might add (that no one else has included) is that the parties to a contract must have “capacity” to contract in order for the contract to be binding. Therefore, a contract entered into with a child, for example, or a person of diminished mental abilities likely will not be enforceable.

FRANK D6 says:

If you intend that as a threat, it’s very effective. :wink:

If you are planning to do that you better post it in the Pit 'cause it’s gonna be ropes and pitchforks and torches and irate mobs for sure. :wink:

Lex Non Favet Delictorum Votis

Say what you will about the Rule Against Perpetuities. All I know is that as a law student, I, like everyone else, thought it was something I would never see in my practice. But I litigated a RAP case in my very first year out of law school.

Of course, it’s never come up again since. So, maybe I just got it out of the way early.

For all you non-lawyers out there, the Rule Against Perpetuities is a law about future interests in property. As I recall, it says: “All future interests must vest, if ever, within 21 years from the end of a life now in being.” Or something like that.

Plunging like stones from a slingshot on Mars.

I love this stuff.
I’ve seen a few older contracts (50s, 60s) in Canada where the agreement survives until the death of the last descendant of Queen Elizabeth the Second.
Also, there is a standard contract clause along these lines: “This Contract constitutes the entire agreement between the parties. This contract supercedes all other agreements between the parties written or spoken…” to avoid disputes.


in answer to your inquiry, the civil law applies in Quebec, the common law in the rest of the Canadian provinces. Property law, contracts, tort, family law, etc. are a provincial responsibility, so there is variation from province to province.

A gift wouldn’t be an enforcable contract in the other provinces, unless it complies with the common law requirement of sealed document (if I remember correctly from my common law degree.)

The civil law, by contrast, is traditionally more philosophically inclined than the common law, and focusses much more on the meeting on the minds than the physical manifestation, such as the sealed document (if I remember correctly from my civil law degree).

I don’t do contract law much in my practise, so I’m a bit fuzzy on the details of other differences between civil law and common law. The bottom line result is often the same under both systems, but the reasoning used to get there can vary. This isn’t much of a surprise, since both the common law and the modern civil law grew up in very similar social and economic systems. The different treatment of the gift is just a good example of where the different philosophical principles leads to different results.

oh, and in relation to the Rule Against Perpetuties - a colleague of mine was involved in negotiating a contract that was to apply for a long time, so he wanted to use the “descendents of Queen Elizabeth now living” clause. But then we got into a debate about being sure who they were - this was about the time of rumours of a little Windsor baby down in the Falklands, following Randy Andy’s tour of duty. So we put in “legitimate descendants.”