Contracts are an unavoidable part of business, and online companies are not exempt. These days, contracts have become ubiquitous in cyberspace. They may appear as sign-up agreements or a Non-Disclosure Agreement. If you are starting an online business, you will need to understand the legal requirements for a valid contract.
Here, you will learn what makes a contract valid, how it can be voided, and who can make a legally binding contract. Plus, we’ll answer several important questions related to the topic.
Elements of a Contract
A contract is an agreement that can be enforced by law. Legal experts agree that for a contract to be enforceable, it must have several key elements. The first of these requirements is the offer:
An Offer Must Be Made
An offer is a proposal to enter into an agreement. The person who makes the offer is called the proposer. An offer can be revoked after it has been made as long as it has not been accepted. In the case of an online contract, an offer may come as a form that must be filled out to gain access to a service or the ‘I Agree’ button at the bottom of an app’s terms and conditions.
The Offer Must Be Accepted
Once the offer is accepted by the person to whom it was made, it becomes a promise. Acceptance must be communicated to the proposer. Acceptance must also be unconditional and absolute. Otherwise, it is no longer an acceptance but rather a counter-offer.
An offer can be accepted in writing, verbal assent, or affixing your signature to the contract document.
You can also accept a contract by attaching an electronic signature to the document. This could be a scanned copy of your signature, your name typed into the signatory space on the document or even just a ticked checkbox. According to federal legislation enacted in 2000, putting your e-signature on an electronic contract will make it an enforceable agreement.
There Must Be Consideration
Consideration is a legal term that means something of value in the eyes of the law. This could be an amount of money, the performance of an act, or refraining from performing an act which one has a right to do. It is basically what is offered to the other party for fulfilling the promise.
The Subject Must Be Legal
The law will not enforce an agreement to do something illegal. A contract to defraud someone would not only be unenforceable but illegal.
Both Parties Must Have the Capacity to Contract
Generally, a contract with a minor is not binding. The same goes for someone who is mentally incapable. Although, if a person authorizes someone else to make legal decisions on their behalf before the onset of mental illness, any contract made on their behalf will be binding.
Can I Make My Own Legally Binding Contract?
Simply put, yes. As long as it meets all of the requirements, it will be legally binding. You don’t have to have a law degree to make a contract with someone. It could be as simple as a verbal agreement like ‘I’ll pay you $30 to drive me to my destination.’ In fact, we make many such informal and verbal contracts every day that could be legally enforced if breached.
However, a legally binding contract is no joking matter. If it is not drafted correctly, you could leave loopholes in the contract that the other party could breach without any legal consequences.
So while you can definitely make your own legally binding contract, you should consult a lawyer or a legal service if there’s a lot at stake.
What Makes a Contract Void?
A void contract is a contract that is deemed unenforceable. Legally, it is treated like it was never made.
Void contracts should not be mistaken for voidable contracts. Unlike a void contract, a voidable contract is considered valid and binding if both parties agree to continue with it. The avoidable contract remains valid until the party to whom it is voidable voids it.
A contract could be considered void for any of the following reasons:
- It fails to meet any of the requirements listed above
- It contains aspects that are impossible to perform by one of the parties
- It involves an unlawful object or consideration
A contract can also be rendered void by new laws coming into effect or information previously unknown to both parties.
Who Lacks the Capacity to Contract?
Minors and the mentally incapable lack the capacity to contract. That is, legally, they are presumed not to know what they are doing. Therefore, any contract made with a person under 18 (in most states) is considered voidable. That means they can choose to either end the contract or go on with it. However, if a minor does not void a contract before they turn 18, they will have to honor it.
In most states, a person is considered mentally incapable if it is proven that they can’t understand the meaning and effect of the words of the contract.
People under the influence of drugs or alcohol may be seen as lacking the capacity to contract in some cases. Generally, courts will hold people who are voluntarily intoxicated responsible for any contracts they enter in that state unless it can be proven that:
- They couldn’t understand the nature and consequences of the contract they signed at the time.
- The sober party took advantage of their inebriated state.
Under these conditions, such a contract may be voidable.
Are Online Agreements Legally Binding?
The Electronic Signatures in Global and National Commerce Act (ESIGN) was enacted in 2000. It made most e-contracts and e-signatures just as enforceable and legally binding as regular paper contracts.
An e-contract is a contract prepared and signed electronically. An electronic signature or e-signature is a file or symbol attached to a document to indicate a person’s intent to sign that document.
Are Online Terms and Conditions Enforceable?
Properly drafted terms and conditions are crucial for any online business. They help to avoid unwanted legal issues and potential liability. As long as users are given ample opportunity to read and understand the terms and conditions, they will be recognized and enforced by a court of law.
Recommendations for Legal Service Providers
Contracts are a great way to protect your online business legally, and many online legal services will help you ensure that your terms and contracts are watertight. Here are a few online legal service providers we recommend.
LegalZoom is an online legal service provider with over 4 million clients. They offer a wide variety of services, including a legal document service that lets you select a template from a list of contracts and legal documents.
Using their legal document service is pretty straightforward. You just select the template you need, answer some questions about the document and watch the blanks fill in with your answers.
LegalZoom is not a law firm, so it’s not allowed to give legal advice, but they will connect you with one of the many lawyers on their Attorney Network.
All in all, LegalZoom is an excellent choice whether you need to draft a quick Non-Disclosure Agreement or incorporate your online business.
- An extensive network of legal professionals
- Easy-to-use templates
- Great customer service
- Costlier than alternatives for business formation
Founded in 2008, RocketLawyer has an extensive library of legal form documents that can be filled and downloaded to suit your purpose. For a monthly membership fee of $39.99, you get:
- Custom business forms (worth $39.99 per document without membership.)
- First business formation free (only pay govt filing fees.)
- 30-minute phone session with a lawyer (worth $59.99 per consultation without membership) etc.
- RocketLawyer has a feature called Document Defense that lets you request an attorney’s aid if a custom contract from RocketLawyer is disputed.
They generally have positive reviews online with a score of 9.7 out of 10 on Trustpilot.com and 4.9 out of 5 from Consumeraffairs.com.
- Intuitive document creation software
- Great customer service
- 7-day free trial
- Requires credit card information to access a free trial
Starting at $34.95 per month or $84 annually, LegalNature is a great place to get legal templates. Like most online legal services, you can customize the documents you need by answering a few questions. They also offer a variety of legal services, such as real estate management and estate planning.
As with most legal services, LegalNature is not authorized to give legal advice, so you’d have to look elsewhere if you need in-depth legal help with your online business.
Nevertheless, LegalNature has lots of positive reviews online and a rating of 4.3 out of 5 on Trustpilot.
- Easy-to-use interface
- 7-day free trial
- Can download in PDF or Word
- Complicated process to cancel the service.
Forms and Contracts
If you’re looking for a quick and easy way to set up some legal contracts, you can try Law Depot and Legal Templates. You simply search for the contract you want, download and edit it according to your specifications.
Terms and Conditions Apply …
Making an agreement that is enforceable by law is simple. As long as it meets the above requirements, it should hold up in court, whether or not it was prepared and signed on paper. However, you should still seek legal advice to know what will work best for your online business.