Binding contract
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Binding contracts - these are legal agreements concluded between two or more parties and are enforceable in accordance with legal requirements. They are not always concluded in writing. It happens that some entities conclude binding agreements on the basis of verbal arrangements or offers which do not meet the formal terms of the agreement (the so-called essentia negotii), e. g. accession to the performance of the agreement on the basis of the offer itself. The difference between normal contracts (e. g. insignificant contracts) and binding contracts is that the latter require a legal basis and legal capacity. As a result, a person with limited legal capacity will not be able to conclude a contract and therefore will only use ordinary contracts in legal transactions.
Full legal capacity as a obligatory element to enter into binding contract
Full legal capacity is a legal fiction accepted for the purposes of economic trading. It is assumed that people after reaching a certain age are mentally mature enough to be able to enter into a specific type of contract. Different national regulations adopt different age criteria. Nevertheless, other grounds for full legal capacity [1]:
- Full mental capacity;
- Non-restriction of legal capacity by a final court decision;
- Awareness not excluded (temporarily excluding full legal capacity).
Considering the above, when concluding contracts we should not ask everyone to prove that they have full legal capacity. However, it is recommended that due care be exercised, inter alia, by: identify the person concerned and use appropriate suspicion (e. g. whether the person will certainly be able to fulfil the obligation or whether he or she has the appropriate authority to represent the legal person) [2].
Binding contracts and a economy
The conclusion of legally binding contracts has a huge impact on the economy of a region/state or globe. This is due to the fact that they provide adequate security for both parties. In the event of any litigation, they shall be the basis for determining the validity of the claims of either party. However, as set out in the previous paragraph, the contract must be concluded by persons with full legal capacity or appropriate authority to act. Otherwise, it may be challenged by the court or by the other party (in the event of a dispute) and will not have the desired effect.
Moreover, it is worth noting that thanks to the security of economic transactions, enterprises may apply less restrictive contractual penalties and banks may apply less security for credit lines granted to finance their business activities. This means that binding contracts play a very important role in the economy as they serve as security and guarantee of economic turnover.
Ultimately, it is important that binding contracts are not considered in absolute terms. Well, the issue of court proceedings and the enforcement of claims is very fluid and depends on the legislation of the country concerned. Always be prepared for a protracted procedure that will not necessarily allow you to quickly recover the relevant debts or repair the damage you have suffered [3]. In connection with the above, the basic disadvantage of binding contracts is noticeable. They are only a kind of abstract that is prepared to create a kind of shield that is not always 100% effective.
Examples of Binding contract
- Employment Contract: An employment contract is a legal agreement between an employer and an employee. It outlines the rights and obligations of each party to the agreement, including the employee's job description, compensation, and any other terms and conditions of employment.
- Lease Agreement: This is a legally binding contract between a landlord and a tenant that outlines the terms and conditions of the tenant's occupancy of the landlord's property. The agreement typically includes details such as the length of the lease, rent amount, security deposit, and any rules or restrictions imposed on the tenant by the landlord.
- Loan Agreement: This is a legal document between a lender and a borrower that outlines the terms and conditions of a loan. It typically includes information such as the amount of the loan, the interest rate, and the repayment schedule.
- Purchase Agreement: This is a legally binding contract between a buyer and a seller that outlines the terms and conditions of a purchase. It typically includes details such as the purchase price, delivery methods, payment methods, and any warranties or guarantees associated with the purchase.
Advantages of Binding contract
One of the main advantages of binding contracts is that they provide certainty and legal protection to all parties involved. This means that each party has a clear understanding of their rights, responsibilities, and obligations under the agreement. Additionally, binding contracts are legally enforceable, meaning that any failure to comply with the terms of the agreement can be pursued in court. Other advantages of binding contracts include:
- Increased efficiency - Binding contracts make it easier for parties to fulfil their obligations quickly and efficiently, as all the terms are laid out in the contract. This eliminates the possibility of misunderstandings or disputes arising from unclear expectations.
- Improved trust - Entering into a binding contract is a show of trust between two parties. This can help to build a strong relationship between the parties, which can be beneficial in the long run.
- Improved security - By having a binding contract, parties can be sure that their rights and interests are protected. This can help to reduce the risk of financial loss in the event of a dispute.
- Clarity - Binding contracts are clear and concise, and there is no room for ambiguity. This ensures that all parties understand their obligations and there is no confusion.
Limitations of Binding contract
Binding contracts have certain limitations, including:
- They can only be enforced in accordance with the law and are subject to applicable statutory requirements.
- They must involve all parties in the agreement and the parties must have the legal capacity to enter into a contract.
- They must be based on mutual consent, and any one party may not be forced to enter into a contract.
- They must be in writing and must be signed by all parties to the agreement.
- The terms of the contract must be clear and unambiguous, and all parties must understand the terms.
- The contract must be reasonable and the parties must have an understanding of the risks involved in entering into the agreement.
- The contract must be supported by consideration, i.e. each party must receive something of value in return for their obligations.
- The contract must be legally binding, meaning it must be enforceable by a court of law in the event of a breach.
Introduction: Apart from the legal agreement, there are other approaches related to binding contracts. These include:
- Consensual contracts – this type of agreement is based on the mutual consent of the parties, who must both be legally able to enter into a legally binding agreement. It is often used in business transactions to ensure that both parties are on the same page with regards to the terms of the agreement.
- Unilateral contracts – this type of contract is based on the promise of one party, with the other party not being required to do anything in return. This type of contract is often used in situations where one party wishes to ensure that the other party remains bound to certain terms, without the other party having to make any additional commitments.
- Executory contracts – this type of agreement is one in which both parties are obligated to perform certain actions. The agreement is often used when both parties agree to perform certain tasks and services over a certain period of time.
- Quasi-contracts – this type of contract is based on the concept of equity, rather than the mutual consent of the parties. It is often used in situations where one party is found to have an obligation to the other, despite not having entered into a legally binding agreement.
Summary: In addition to the legal agreement, there are other approaches related to binding contracts, such as consensual contracts, unilateral contracts, executory contracts, and quasi-contracts. These approaches are based on different principles, such as mutual consent, promise of one party, performance of tasks and services over a certain period of time, and the concept of equity.
References
- DiMatteo L. A., (2013), Soft law and the principle of fair and equitable decision making in international contract arbitration "The Chinese Journal of Comparative Law"
- Hoffman D. A. and Eigen Z. J., (2017), Contract Consideration and BehaviorFaculty Scholarship. 1750.
- Wilkinson-Ryan T., (2015), Intuitive Formalism in Contract "Faculty Scholarship"
Footnotes
Author: Weronika Brach
