Future Business Leaders of America (FBLA) Business Law Practice Exam

What is required to create a legally binding agreement between parties?

1. A proposal by one party to another

2. A mutual agreement signed by witnesses

3. A contract stipulated by a lawyer

4. A verbal agreement in front of a third party

The correct answer is: A proposal by one party to another

To create a legally binding agreement between parties, a proposal by one party to another is essential as it establishes the initial intent to form a contract. This proposal is commonly referred to as an offer, which outlines the terms and conditions that the offering party wishes to put forth. For the agreement to become legally binding, the other party must accept the offer, which constitutes mutual assent or agreement. Legally, a contract may be formed based on the intention of the parties to create a legal obligation, and an enforceable agreement can result from a simple offer and acceptance, even if written documentation or witnesses are not present. Hence, the presence of a clear proposal and acceptance is fundamental to establishing the terms of the agreement. Mutual agreement signed by witnesses, while helpful in some situations to confirm the authenticity of signatures or the occurrence of the agreement, is not a strict requirement for a contract to be legally binding. Also, a contract created by a lawyer, while formal, is not necessary for the validity of an agreement as many contracts are legally binding without legal representation. Lastly, although verbal agreements can create binding contracts in certain circumstances, their enforceability can often be challenged, making them less reliable than written agreements. Thus, the focus on the initial proposal captures