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What constitutes a legally binding contract?

Legally binding contracts can be used in any business transaction, including but not limited to rentals, purchases of property, purchases of a vehicle, employment agreements and settlement agreements. There are three things that must be included in the contract in order for it to become a legally binding contract.


The parties to the contract must be competent. A contract can be deemed void if either or both parties do not have the capacity to enter into a contract. Examples of incompetency include a drugged person, an underage person or a person who is mentally impaired.


When people hear the word "consideration" in conjunction with a contract, many assume money must be involved. Consideration can be services, as long as you give up something in exchange. Money is common, but property, services, giving up a right and giving up a valid claim are also examples of consideration.

Mutual Assent

Mutual assent is also known as a "meeting of the minds." When both parties have mutual assent, both parties understand the details of the contract, the rights of each of the parties and the contract obligations. A meeting of the minds has not happened if one party is clearly bragging, joking, if there is no agreement (a party states that one part of the consideration is of one type, when in fact it is another type), or if both sides made a mistake relating to the terms and/or details of the contract.


Contracts can be verbal or written. Contracts should be in writing, even for a small amount of consideration.


When drafting a contract, if you're unsure about what should be contained in it, contact an attorney to help you draft the terms and conditions. Make sure that each signature has two witnesses and that both parties' signatures are notarised.