In today's Freedom Friday blog and email newsletter, I want to talk about another basic topic that frequently comes up with my clients, and that is whether or not a contract is legally binding. Whether my clients want to enforce their contracts, defend against an alleged breach of contract (which may or may not exist), or create a contract from scratch, it's important to find out whether your “contract” or agreement is legally binding. So, in today's Freedom Friday and email newsletter, I'm answering the question, “Is my contract legally binding?”
A legally binding contract is like a three-legged stool. If you're missing any of the legs, then you do not have a legally binding contract, and this works if you're dealing with a written or oral agreement. The first leg of the stool for a legally binding contract is that there must be an offer. An offer means one party expresses a willingness to make a trade with another party. This offer can be verbal, a written estimate, a proposal, or even an email. Courts will look to the context to determine if the communication is a valid offer. If a reasonable person, hearing what you heard (or reading what you read), would think it's an offer, then it's probably a valid offer.
The second leg of the three-legged stool for a legally binding contract is an acceptance. The offer must be accepted by the other party. This can be done in writing, but it can also be done verbally. Actions without words can also be an acceptance. Even if you do not have a written contract, you can accept an offer by actions, for example, accepting a product that's delivered to you. As a personal example, I've received credit offers in the mail for a personal loan, and the offer includes a check by the finance company written to me, along with a term sheet, and the instructions if I deposit this check in my bank account, I've accepted the terms of their offer. Yes, you can accept by your actions, without signing on the dotted line.
The third leg of the three-legged stool for a legally binding contract is consideration. Consideration is something of value which is exchanged for what was offered. This can be money that you pay for a good or a service, but it can also be other things, like time, labor, or even an agreement to NOT take an action when you would otherwise be legally allowed to do so.
If you have an offer, acceptance, and consideration, you will usually have a legally binding contract, at least if the contract is in writing, but not in certain circumstances. I do not get a lot of questions about whether a written contract is legally binding, but I do get a lot of questions about verbal agreements. A verbal agreement may not be legally binding because of the statute of frauds. Oklahoma has two statutes of frauds, but in general, certain verbal agreements are not valid by their own terms, if they deal with real property, take longer than one year to perform, or involve the sale of goods for more than $500.00. Any contract involved those types of situations must be in writing in order for the contract to be legally binding and enforceable in court.
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