Contracts are an essential component of business activities. They outline the rights and obligations of all parties.
Nonetheless, a contract must follow certain procedures before it becomes legally binding. When might a business contract not be legally binding? Let’s look at a few key reasons.
Lack of capacity
All contracts must be entered into voluntarily. An individual cannot be forced into signing a contract against their will. Parties to the contract must also have legal capacity. This means that they need to be adults who are capable of understanding what they’re agreeing to and have the right to sign the contract. If one or more parties lack legal capacity, the contract will be invalid.
No consideration
For a contract to be valid, there must be consideration. Essentially, this means things of value, such as money and services. Promises made without something of value in return typically do not count as legally binding contracts. Both parties must offer consideration for the contract to be enforceable.
Ambiguous terms
The terms of a contract must also be clear, complete, and unambiguous. Ambiguous terms can lead to legal disputes and even invalidate the contract. While some verbal agreements may stand as legal contracts, this is very difficult. It is much more effective to have contracts written down with terms that clearly enforce rights and obligations.
Business contracts are essential. They must be drafted appropriately and reviewed regularly to ensure that the terms are favorable and in line with current regulations. Seeking legal guidance can help you draft sound business contracts or resolve disputes should they arise. Ensuring clarity, legal capacity, and valid consideration will strengthen your agreements and protect your business interests.
