A contract is a legally binding agreement formed through an exchange of promises between two or more parties. It requires three essential elements: offer, acceptance, and consideration (something of value exchanged). A contract can be written, verbal, or implied, as long as both parties understand and willingly enter into the agreement.
Once a contract is made, both parties are legally obligated to fulfill their promises. If one party fails to perform, the other party may seek legal remedies, such as enforcement or compensation for damages. Courts enforce contracts to uphold fairness in business and personal dealings, ensuring reliability and predictability in transactions.
The core principle of contract law is simple: A deal is a deal—as long as both parties knowingly agree and the contract does not violate the law.
Do contracts need a formal written agreement signed by both parties?
No, contracts do not always need a formal written agreement signed by both parties to be legally binding. Contracts can be formed in different ways, including:
- Written Contracts – A formal document signed by both parties is the strongest form of contract and is often required for complex transactions (e.g., real estate sales, long-term service agreements).
- Verbal Contracts – Spoken agreements can be legally binding if they include offer, acceptance, and consideration. However, they are harder to enforce because they rely on proof of what was said.
- Implied Contracts – These arise from actions rather than explicit words. For example, if you order food at a restaurant, you are implicitly agreeing to pay for the meal.
When a Written Contract is Required:
Some contracts must be in writing to be legally enforceable under the Statute of Frauds, which generally includes:
- Real estate transactions
- Contracts lasting over one year
- Agreements for goods over a certain value (e.g., $500 in the U.S.)
- Promises to pay someone else’s debt
- Marriage-related contracts
Best Practice:
Even when not required, a written contract is always recommended because it provides clear terms and proof of the agreement, reducing disputes and legal risks.
