Reading time: 5 minutes

Contracts are a tool that all people use in their everyday lives, sometimes without realising it. They are a central building block of our legal system. Contracts, whether written or not, are powerful because they are legally enforceable. This means contract law will protect your agreement. You can enforce the contract through the courts or by ordering your contracting party to pay damages if they do not follow the contract. The contracting party is the person that you have entered into a contract with. 

However, a valid contract can only be legally enforceable if it meets all the requirements of a binding contract. Many people may not know whether contracts have to be written to be binding. This article will explain whether contracts have to be in writing as well as what other forms they could take.

Elements of a Binding Contract

Under contract law, for a contract to be legally enforceable, it has to meet several elements. This is to make sure that contracts are fair and both parties want to enter into the contract.

The elements of a binding contract are:

  • a clear offer;
  • unequivocal acceptance;
  • valuable consideration;
  • the intention from both parties; and
  • certainty in the contractual terms.

Clear Offer

A clear offer is when one party has extended an offer to the other party in a reasonable way for them to receive. The party that receives the offer should understand that they are receiving an offer to contract on certain terms. Therefore, it must be clear so as not to cause any confusion.

Unequivocal Acceptance

The party receiving the offer must unequivocally accept the offer to contract on the terms provided. Unequivocal means that there cannot be any interpretation that suggests that the party receiving the offer does not accept it. If the party receiving the offer wants to contract but on different terms, they can send a counter offer. In this case, the party receiving the counteroffer must accept it unequivocally for a binding contract.

Valuable Consideration

Consideration is what each party receives under the contract. Consideration can also be a promise to provide something. If only one party receives something under the contract, then the contract is unenforceable as it is a gratuitous promise. A gratuitous promise is when you promise something without expecting anything in return. Consideration must be sufficiently valuable for the benefit that the party receives in return.

An Intention to Bind from Both Parties

For a contract to be legally enforceable, the parties must wholeheartedly intend for the contract to be binding. If one party does not believe that the contract was binding when they signed it, it will be considered unenforceable. This is why some contracts require a witness signature. A witness signature testifies that both parties considered the agreement binding and to show that the agreement is authentic.

Certainty in Terms

The terms of the contract are the building blocks of it. These terms must be certain and cannot cause any ambiguity. Often, contracts are explicitly worded in plain English, as this makes the contract easier to understand. It also makes it easier to resolve any disputes that arise. If the courts find an ambiguity in a contract, they may rule that clause or the entire contract unenforceable. 

Types of Contracts

There are several types of contract, and a contract does not have to be written down for it to be binding.

Written Contract

The most common type of contract is a written contract. Written contracts are useful as both parties know what they are signing, and the contract acts as a reference document for future use.

Oral Contract

You can also agree upon a contract orally. This means that both parties agree to something during a conversation. The elements of a binding contract must still be satisfied for it to be enforceable. However, it can be hard to determine what was agreed to under a verbal contract. Therefore, writing them down is always a good idea. 

Implied Through Conduct

Contracts can also be implied through conduct. However, these types of contracts are uncommon and can be hard to enforce. This is because they usually do not satisfy the elements of a binding contract.

Key Takeaways

A contract is only legally binding if it meets the elements of a binding contract. If a contract is not legally binding, both parties are not under any obligation to follow the terms in it. Contracts are usually written down, but they can also be orally agreed upon. However, verbal contracts can be hard to prove and often cause disputes because there is no physical evidence. This is why it is best to write down your contracts so that there is more certainty around them. For legal assistance with managing your contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Do I need a witness signature for my contract?

Only certain legal documents such as trust deeds require a witness signature. However, it is good to include a witness signature as it adds an extra layer of security.

Will a court ever uphold an oral agreement?

If there is enough evidence that the elements of a binding contract are satisfied, then the courts will uphold the agreement.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2019 Top 25 Startups - LinkedIn
  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards