What is a Binding Contract?

Alexis W.

A binding contract is a written agreement between two individuals or entities that will be enforced by the power of the law. The contract is thus considered binding because if one party fails to live up to his obligations as set forth in the document, the court will impose penalties. Some refer to a contract as the creation of a private legal duty, because two parties create a legally enforceable exchange of promises.

There are penalties for failing to fulfill obligations in a binding contract.
There are penalties for failing to fulfill obligations in a binding contract.

In order for a contract to be binding, it must be made in accordance with the contract law of the relevant jurisdiction. The exact rules for what is required to create a binding contract differ from state to state, country to country, and situation to situation. For example, in the United States, certain types of contracts must be in writing, such as contracts for the sale of goods of more than $500 US Dollars (USD, while other contracts do not need to be in written form to be enforced.

The most common type of damages for breaking a binding contract are monetary.
The most common type of damages for breaking a binding contract are monetary.

The contract is considered binding because there are penalties for not fulfilling the obligations set forth within the document. If one party fails to do what he promised in a legally valid, enforceable contract, the other party can take him to court and sue him for breach. If the party suing establishes that the contract was valid and that failure did in fact occur, the court will find for the plaintiff and award damages.

The most common type of damages for breaking a binding contract are monetary. The plaintiff is paid the amount of financial loss he suffered as a result of the breach. The losses must be actual or provable, and the plaintiff has the obligation to try to mitigate, or minimize, the financial losses he incurs as a result of the breach.

Other damages for breach of a binding contract do exist, however. In some cases, the court will command specific performance. This means the defendant who breached the contract will be legally compelled by the court to fulfill his part of the bargain. This occurs in situations where financial damages could not quite make the plaintiff whole, or put him back into the situation he would have been in if the breach had not occurred, such as if the contract was for the sale of an extremely rare item.

When a person signs this type of contract, he thus needs to be aware that he must do what the contract says. Ignorance of the contents of the contract is no defense, because the law imposes a duty to read. This means if a binding contract is signed, and no valid legal defenses exist — such as material fraud in the creation of the contract or mutual mistake — the parties must carry out their promises under penalty of the law.

Binding contracts require all parties to add their signature.
Binding contracts require all parties to add their signature.

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Discussion Comments


It would cost too much time out of each day if one read every single contract presented not to mention questions towards clarification and disambiguation. Also to be considered the practicality of presenting so much legalese that one must become versed in law or retain a lawyer to consider the ramifications of each and every new contract or revisions of previous agreements.


What about binding arbitration agreements? When you open a account with the bank, they do not show you the agreement and do not get you to sign it, and they do not tell you what all you are agreeing to.


I was working with a contractor to get floors installed and paint done on a condo. At 3 p.m., via text, I asked him to send me the agreement and that in the evening I would sign the agreement and make plans for service. At 9 p.m. that night, I texted him back and told him that I had changed my mind due to personal reasons.

Now this contractor keeps calling me and telling me that I owe him money as he ordered supplies. Is a text legally binding? Don't I have 24 hours to change my mind and not owe any money?


I signed a contract on the day I buried my father, to purchase a marker for my grave. I paid on it for around a year through automatic payments, then switched banks and never resubmitted my new bank account info. I tried to just opt out of the contract since it was an item not yet made or received. Am I still liable to pay on this item not received?


In any situation, can a binding purchase contract be terminated without penalty or damage to any parties?


@Cupcake15 - Wow, I have heard of a schools keeping the deposit but paying the full year’s tuition is a lot.

I know it puts the school in a bind because it is more difficult to get children to start a new school once the school year begins but still. A lot of schools make the parents pay the tuition insurance which is supposed to go to these types of situations.

It is only a few hundred dollars for the entire year so this way the school does not lose.

I know that I am always careful about what I sign and always make a copy for my records because it is always a good idea to keep a record of all legal contracts that you sign.


@AAACookie -I agree you really have to look at the fine print. I know that many private schools also have legal and binding contracts with the parents in order to ensure that their classes will be full in the fall.

Most private schools will keep your deposit if you decide not to return in the fall term, but some schools have stiffer penalities.

For example, at my children’s school there is an additional 10% of the outstanding tuition fees to be paid to the school in addition of losing the deposit.

Some schools go further and state that the parent still needs to pay the entire year’s tuition regardless if the child is attending or not because this is a legal contract that is binding between the parent and the school. You really have to look at these contracts before signing.


Many of us sign contracts every day we ignore- any time you go online and sign up for a service or website membership, the agreement to terms of service could be considered a binding contract. While most of these might not harm a user if you ignore them, sometimes people can miss fine print that discusses fees or fines, and it is important to pay serious attention to anything which requires a credit card number.

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