What is a binding vs. non-binding contract?
Take a look at the differences between binding and non-binding contracts and learn what makes a contract legally enforceable.
What is a binding contract?
A “binding contract” is any agreement that’s legally enforceable. That means if you sign a binding contract and don’t fulfill your end of the bargain, the other party can take you to court.
To make a contract binding, it needs to include several key elements:
- Offer and acceptance — One party needs to offer something (money, services, rights, etc.), and the other party needs to accept the offer.
- Consideration — The benefit that both parties receive. This can be money, services, items, or anything of value.
- Mutuality or intention — The understanding that both parties expect to be bound by the contract and to fulfill their end of the bargain.
- Legality — The contract has to obey all federal, state, and local laws. You can’t make a contract for something illegal.
- Capacity — All parties are legally able to sign the contract (for example, a person’s age might make them ineligible to legally sign a contract).
If a contract contains all these elements, it can be considered binding and legally enforceable.
What is a non-binding contract?
A non-binding contract is any contract that’s either missing one of the elements required to be binding or includes non-binding language such as “this contract is non-binding.”
Non-binding contracts are typically used when two parties want to put down preliminary discussions on paper to make sure they’re on the same page, but don’t want to explicitly agree to anything yet.
A Letter of Intent is a good example of a non-binding contract.
Sign contracts legally online.
While there are several differences between binding vs. non-binding contracts, there’s one thing every contract needs: a signature.
To make signing contracts simple, use online signatures with a program like Adobe Sign. You can add legal signatures to Word Documents, PDFs, and more quickly and easily right from your computer or other device.