Last updated July 18, 2022
Signing and entering contracts can be confusing when you aren’t a legal expert in contract law. Besides having to read through complex legal language, navigating how to sign a contract and protect yourself can seem overwhelming.
In this guide, we help prepare you for signing your next legal document by exploring the elements of a valid contract, contract clauses, reviewing and amending contracts, and more.
Table of Contents
What is a binding contract?
A binding contract is a written or spoken agreement between two or more parties that is legally enforceable. Ideally, contracts should always be in writing, as verbal agreements can be much harder to enforce.
But what exactly makes a contract legally binding? There are five key elements to check for when executing your next contract.
Elements of a valid contract
For a contract to be considered valid and enforceable, it must possess the following elements:
1. Offer and acceptance
Legally binding contracts must include a party making an offer and another party accepting the terms of the offer. For example, if a contractor offers to renovate a client’s house for a certain price and the client accepts the offer, the two parties have entered a contract.
An offer is a conditional proposal that begins a negotiation. When you make an offer, you show your willingness to enter a contract and convey your understanding that it will become binding if the other party accepts its terms. After you present an offer, a party can accept or decline it.
Acceptance simply means that you have accepted an offer. Acceptance could be communicated by making a payment or by providing your signature. However, acceptance doesn’t necessarily have to be said or written to be conveyed.
Acceptance can be given through conduct. For instance, if you offer a landscaping contractor $100 to mow your lawn and she mows your lawn without verbally accepting the agreement, her actions show her acceptance and you must pay her.
Consideration is the value offered and accepted by the parties entering into a contract. People usually think of consideration as money, but it can be anything of value. Consideration can be a/an:
- Sum of money
- Promise to do something
- Promise to not do something
Within contract law, both parties provide consideration. For example, if you create a Bill of Sale or Sales Agreement to sell your car to a buyer for $2500.00, your consideration is the car and the buyer’s consideration is the $2500.00. Without consideration, a contract may not be valid.
Remember, consideration doesn’t have to represent a ‘good deal’ for either or both parties. For example, when selling a vehicle, you may give a family member or friend a deal and sell at below market value. Deciding on the consideration that you’re willing to give up is a matter of your judgment.
Past consideration, such as money or services that were provided before an offer was made, is typically not valid when forming a contract. In other words, consideration can’t be retroactive.
3. Mutuality or intention
Mutuality, also known as intention or mutual consent, means that parties entered a contract with the intention that it would be enforceable and valid. Often, this mutual intention is referred to as a “meeting of the minds.”
This requirement might seem obvious, but if a court found that a contract was created with uncertainty from one or all of the parties, that may affect its validity.
Imagine that a son tells his mother that he will tile her floor in exchange for her old car, but she refuses to give him the car after he has already tiled the floor. The mother tells him that she was joking when she agreed to trade her car as payment. If the son took his mother to court, the court may be unable to prove that the mother intended to form an actual contract with her son.
You can avoid uncertainty surrounding mutuality and intention by always putting contracts in writing.
Legality just means that the contract’s subject matter must be legal in the state or jurisdiction in which it is created. Essentially, individuals can’t form a contract around an activity, promise, or something else that is illegal.
For a contract to be valid, it must not contain unlawful promises or considerations. A common example of unlawful consideration is a promise to do something against the law, such as committing a crime.
Capacity means that a person has the legal ability to sign the contract. Things like mental capacity, age, or financial standing are factors that might affect a person’s ability to sign a contract.
For example, a court may find that the following individuals are lacking the capacity to enter a contract:
- Individuals not of sound mind
- Individuals under the influence of drugs
Simply put, not everyone can enter into a contract. Requiring individuals to have full capacity protects both parties by ensuring that everyone can fully understand and fulfill their obligations.
Incapacity does not include individuals who fail to ask questions and understand the document for no legitimate reason. For example, someone can’t claim they did not have the capacity to sign a contract simply because they didn’t understand a word used in the document.
When is a contract considered non-binding?
A non-binding contract is an agreement in which the parties are not legally obligated to its terms. A contract may be considered non-binding if it’s void or voidable.
The main difference between void and voidable contracts is that a void contract is invalid from the beginning, while a voidable contract is initially valid but may be deemed void later at the option of one of the parties.
If a court or tribunal rules that a contract is void, it means the contract has no force or effect, so neither party is bound by it and neither party can rely on it. Generally, if a contract is void, it’s because it doesn’t possess all the elements of a binding contract.
For example, a court may find that a contract is void if:
- The contract’s terms are illegal or against public policy
- The contract’s terms are impossible to fulfill or too vague to understand
- There was a lack of consideration
- It restricts an individual’s right (e.g. right to choose who to marry)
Voidable contracts are valid contracts that any party may choose to enforce or void. A court or tribunal may rule that a contract is voidable if:
- A party was coercing or threatening the other party into signing the agreement
- A party was under undue influence (one party dominated the will of another)
- Mistakes are present in the contract that affect whether one or both parties can carry out their obligations
- A party breaches the terms of the contract
- Either party misrepresented facts or omitted information
- Either party commits fraud
- Either party was incapacitated at the time of signing
When do contracts become enforceable?
It’s a common misconception that all contracts become enforceable the day they are signed. However, this is not always true. In many circumstances, the execution date of a contract occurs before the effective date.
Effective date versus execution date
The effective date is when your obligations outlined in the contract begin. In other words, contracts become enforceable on the effective date. This date cannot precede the execution date, meaning a contract cannot be in effect until after all parties sign it.
Sometimes an effective date is a fixed date that is explicitly stated. However, the contract might not begin on a fixed date and may be conditional instead. If a contract begins on the date all parties sign it, that is a conditional effective date.
The execution date is the day both parties have signed the contract. It’s when both parties agree to the contract’s terms and conditions. However, this isn’t necessarily the same day the contract comes into effect.
For example, if you’re moving into a new apartment, you may sign your Residential Lease in advance. Though you may sign the lease well before you officially move into your new rental property, you are not bound by the terms of your lease until after the effective date.
This means even if you signed your lease months before moving in, you’re not obligated to keep the unit clean, pay rent, or anything else until your lease actually begins (unless something in your contract specifies otherwise). Conversely, you are also not allowed to live on the premises until the effective date.
Keep in mind that a contract isn’t valid until all the necessary parties sign it—regardless of its effective date.
What are boilerplate contract clauses?
A clause is a specific provision in a contract that outlines an understanding between the parties. Generally, a clause describes how the parties agree to act while under contract.
Boilerplate clauses are the standard, miscellaneous clauses that are found at the end of most legal documents. The following provisions address a range of situations, such as what happens if a document is declared unenforceable, how disputes will be resolved, which laws govern the contract, and more.
- A severability clause states that the rest of a contract is still valid if part of it is considered illegal or unenforceable. Without a severability clause, the whole contract could be thrown out if one part of it is deemed invalid.
- A jurisdiction clause declares which laws the agreement adheres to and where the lawsuit will be filed if disputes arise. This clause is also called the governing law clause.
- A dispute resolution clause indicates the preferred form of dispute resolution, such as negotiation, mediation, or arbitration.
- A force majeure clause means that if the parties are unable to perform their contractual obligations due to circumstances beyond their control, their obligations may be temporarily suspended or completely excused.
- A waiver clause protects a party’s rights if they fail to take action in respect of a breach of contract immediately.
- An amendment clause describes how parties will make changes to their contract. Typically, this clause states that changes must be signed in writing by both parties.
- A time is of the essence clause communicates that the timelines listed in the contract are absolutely critical and if a party fails to meet them, the other party is able to rescind the contract.
- An assignment clause clarifies whether parties can give their contractual rights or obligations to another party. The clause might include exceptions, such as if assignment can only be done with permission from the other party.
- A headings clause simply states that the bold headings within the document were placed there for organizational purposes. Usually, headings are an over-simplification of the content and should not affect the clause they are summarizing.
- A counterparts clause is included when the parties will sign separate copies of the same document.
- A notice clause clarifies how each party will deliver notice to the other. It can state the form of notice, how to deliver it, and more.
- An entire agreement clause means that any previous understandings, including both oral and written agreements, are not included in the contract. This clause can be important when there are ongoing negotiations.
Despite being standard in most contracts, boilerplate clauses serve an important purpose in clarifying the relationship between the parties and spelling out any situations that otherwise wouldn’t be addressed in the operative section of the agreement.
You may be tempted to gloss over the details or avoid negotiating standard provisions, but it’s important to review the miscellaneous section for information that could impact you or the other party.
How to review a contract before signing
Entering a contract without reviewing it beforehand can have serious financial and legal consequences. You could agree to an obligation that you can’t fulfill or a price that you can’t pay. Therefore, it’s important to evaluate an agreement carefully before you decide to enter into it.
Whether you present someone with a contract or are presented with one, you can feel confident about the agreement by following these tips:
- Read the entire contract: Although contracts can be lengthy and include complex clauses, it’s important to read them in their entirety. You want to check for any hidden clauses, so you don’t miss any important information.
- Ensure descriptions are specific: The terms of the contract must be clear and specific to avoid misunderstandings. For example, when selling a vehicle, provide a detailed description of the vehicle, including the make, model, and year.
- Clarify uncertainties: Make an effort to understand your role in the contract. If there are any phrasings, definitions, or terms that you’re unclear on—ask questions.
- Pay attention to dates: If there is an acceptance date on the contract, make sure to accept or reject the offer before its expiration.
- Know who you are dealing with: Whether you are leasing a property, entering into a partnership, or simply buying or selling an item, you should always confirm the other party’s identity before signing anything.
How to sign a contract
Signing contracts might seem straightforward, but it’s a process that shouldn’t be taken lightly. Your signature is a mark that identifies you and can be a reflection of your consent, so it’s important that you know why, where, and how to sign your name.
What ink color should I use to sign legal documents?
It’s a good idea to use blue or black ink when signing a legal document. If you need to create copies, using blue or black ink will reduce the chance that signatures in the document do not show up properly.
Often, people scan multiple copies of their Power of Attorney and Will so their lawyer and family members can all have copies. In this case, it’s imperative that your signature be clear and easily recognized by the scanner.
Some colors should not be used on legal documents as a safety measure, such as yellow, green, or orange. If you need to create copies, some document scanners may have a hard time picking up these light colors.
If you’re choosing between blue or black ink, the consensus is that blue makes it easier to assume a document is a signed original as opposed to a black-and-white copy.
Of course, important documents should never be signed in pencil as your signature can easily be erased or altered.
Does my signature have to be in cursive?
Traditionally, signatures are in cursive, but it’s not necessarily a requirement. The most important things about your signature is its authenticity and the intention it represents.
You could even simply print your name as a valid signature. However, the purpose of signing documents is to leave an identifying mark that confirms your identity and demonstrates your intent to consent to the contents of the document.
Generally, signing in cursive is better than printing your name or using symbols because:
- A distinct signature in cursive can be harder to forge than a printed name or symbol
- A signature that displays your name can be tied to your identity better than a symbol
If there is a dispute regarding a signature, a court will typically look at the circumstances of your signature and your intention rather than its exact form.
How to initial a document
Often, initials are a way to acknowledge a small change or edit in a contract after it has been signed to show that all parties agree to the change.
For example, say you are selling your home, so you create an Offer to Purchase Real Estate with an accepted purchase price of $350,000.00 and sign it with your buyer. Suppose you were to increase the purchase price to $355,000.00 to cover an expense the buyer agreed to cover.
In that case, you could manually update your existing contract to include the new price and both initial the change in acknowledgment. That way, if the buyer were to dispute the purchase price down the road, you could use the initialed contract as proof that they were aware of the price change.
If you add your initials to a small change in a contract, be sure to add them in the margin next to the updated information. In addition, it’s a good idea to provide the date alongside your initials. Make sure that all copies of the contract are initialed and that all parties have an updated version.
In general, providing initials is an easy way to add a layer of security to a document that needed a small change made to it.
Do I need to initial each page of my legal document?
Whether you need to initial each page of your legal document depends on your jurisdiction and the document itself. However, if you initial each page of your document and it isn’t required, doing so should not negatively affect your document.
Initialing each page can be a way to ensure that nothing was added to an agreement after it was signed. It can also show that each page had been viewed and acknowledged by the parties signing it.
If you do not initial each page of a document, it does not take away from the validity of your signature on the signing page. If you aren’t sure whether you should be initialing each page, check the requirements in your jurisdiction for the type of document you are signing.
Witnessing a contract
Depending on your contract, it may not become valid and enforceable without the proper witnessing. Some contracts need additional validation and require that your signature is witnessed by someone who can verify your identity.
What is a witness?
In a legal contract, a witness is someone who watches you sign the document and verifies your identity and intention by signing their own name on the document as well.
Having someone witness you sign a contract helps to reinforce the validity and authenticity of your document by adding another layer of security should your contract ever be questioned in court. Ideally, a witness can vouch that the signatures are legitimate and consensual.
Not all contracts require you to have a witness sign with you. However, there are some important documents that require one or more witness signatures. Some documents that might need the signature of a witness or a notary public are:
Witness signature rules
Legally, a witness must meet the requirements set out by your jurisdiction. Most often, witnesses must be:
- Of the age of majority in your state
- Able to confirm the identity of the person who is signing
- Of sound mind
- A neutral third-party
It’s best if your witness is not involved in the contract you are signing and that they don’t receive any benefits from the contract. For example, when a neutral, third-party witness signs a document, it helps to prove that the document was signed willingly and not through undue influence, coercion, or duress.
If you don’t have someone who can act as a witness for you, such as a friend or family member, you can consider having a lawyer or notary public act as your witness instead.
Keep in mind that some documents may require both witness and notary signatures, and that in these cases, they can’t be the same person. However, if your document doesn’t need notarization, you can use a notary as your witness.
Amending a contract after signing
Sometimes, you have to make a change to a contract after you’ve completed and signed it. Rather than starting over, you can make an amendment and save yourself time and effort.
Amendments are used to add or delete provisions in the original contract without invalidating the entire document. A properly documented amendment can help you avoid future disputes.
A properly executed amendment should outline all the necessary changes and use language that is consistent with the original contract. All parties involved in a contract must agree to and sign or initial amendments.
How to amend a contract
When you need to amend a contract, you can go about it multiple ways:
1. Make changes directly in the document
As covered above, you can make changes to an executed contract directly in the written document and have all parties initial the change. The initials of all parties show that everyone has agreed to the amendment.
Although more informal, amending a contract directly can be just as effective as creating an amendment document. Simply strikethrough any deletions, add in the necessary new information, provide the date, and have every party initial next to the changes.
If a contract requires major amendments, creating an Amending Agreement may be the neater, more organized way to outline the changes.
2. Create an Amending Agreement
An Amending Agreement, also known as a Contract Addendum, is a document used to make one or more changes to an existing contract or agreement. Unlike manually editing the written contract, an Amending Agreement is added as a separate document to the original contract or agreement.
If you have to change the main terms or overall structure of a contract, creating a new document may also be an appropriate option.
Depending on your circumstances, there may be more specific documents for you to utilize when amending a contract. For example, with residential and commercial tenancies, instead of amending your Lease with a normal Amending Agreement, you can use a Lease Amendment Form or Lease Assignment Agreement to transfer a lease to a new tenant.
Terminating a contract
You may need to terminate a contract for a variety of reasons. However, once you enter a contract, your obligations may prevent you from simply terminating a contract and walking away. If your contract allows for termination, there may be terms that outline how you can properly pursue termination.
How to terminate a contract
To terminate a contract, check out the following options to discover which are available to you.
1. Check for a termination clause
Read through your contract’s clauses and see if it has a termination clause. If it does, you can follow the clause’s terms to end the contract. Termination clauses usually require parties to provide ample written notice for termination to be permitted. There may also be an early termination fee that must be paid.
2. Negotiate with the other party
If you need or want to terminate a contract early, but it doesn’t allow you to easily end it without repercussions, you may be able to negotiate with the other party. In these cases, you will likely have to ask and convince the other party to agree to the termination. Ideally, they will be willing to work out a solution. However, they may ask you to pay a penalty or give back payment that you had already received during the contract.
If you and the other party can agree to a contract’s cancellation, use a Termination Agreement to protect yourselves and resolve any obligations from the contract.
Depending on your situation, the party you’re dealing with may have no obligation to allow you to terminate the contract. Therefore, always be cautious when entering into contracts.
3. Find a breach of contract
If the other party has broken the contract’s terms and you can prove their breach, then you may be able to terminate the contract.
4. Claim the contract is invalid
If you can prove that a contract is invalid because it’s missing one or more of the required elements, you may be able to terminate it. In addition, if a contract’s terms have become impossible to fulfill, it may be deemed unenforceable.
Think before you sign
When preparing to sign your next contract, ensure you’ve checked it includes all the essential elements, so you can have peace of mind knowing your contract was formed legitimately. Having an idea of the basic elements of a valid contract is a step towards avoiding legal disputes when you enter into a contract.