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What Is a Contract Agreement?

No matter the size of your company, a contract agreement is an essential part of conducting business. A legal contract is a document that all parties agree to. Contract agreements typically lay out the terms and conditions of an agreement, clearly explaining all parties' expectations. This often includes specific details about important aspects like payments, materials, and timelines as well as how the parties can resolve disagreements.

Contracts vs. Agreements

You will often hear the terms contract and agreement used interchangeably. However, it's important to note that contracts and agreements aren't exactly the same things. Agreements create mutual understandings between parties, while contracts are agreements that create enforceable obligations.

When Do You Need a Written Contract Agreement?

Verbal contracts are technically legal in most cases, though there are specific situations when they are not. Still, most businesses create written contracts today. Contracts include many details to try to cover all possibilities and eventualities as clearly as possible.

Most contract agreements never get to a courtroom. Theoretically, they could, therefore, be verbal. However, should something go wrong, a written contract better protects all parties involved. If a party to a valid and enforceable contract thinks the other party has in some way broken the contract (in other words, they've breached the contract), the harmed party can bring a lawsuit using the written contract for support.

While verbal contracts can still have the force of law, certain types of contract agreements are required to be in writing. This includes long-term contracts as well as contracts for marriage, or prenuptial agreements. ( Here is an article with further information about prenuptial agreements.)

It is also possible to have an implied contract. A party can enter into a contract unknowingly and still be forced to fulfill the contract's terms.

What Makes a Contract Agreement Enforceable?

A contract must be clear and specific to be legally enforceable. It also must meet certain criteria. If a contract agreement is legally enforceable, it can be used in a court of law to support a decision if a dispute arises between the parties to the contract. However, if a contract does not include certain key components, it will not be legally enforceable and thus will not stand up in court.

If a contract is valid, litigation (the legal process) can determine if a contract has been breached or if there are circumstances negating the breach. However, a court will only consider a contract dispute if the contract itself is valid.

Essential elements for business contracts relate to both the agreement itself and to the parties entering the agreement. However, it is not illegal for someone to enter into a contract that does not include all of the essential components. A court simply cannot enforce a contract that doesn't include the necessary elements.

Components needed to create a valid contract include:

Offer, Acceptance, and Mutual Consent

All valid contracts must have a specific offer. An enforceable contract must also include acceptance of the specific offer.

Further, both parties to the agreement need to consent to their free will. That means neither party can be forced or coerced into signing a contract. Both parties to the contract must also clearly agree to the same terms.

The conditions of the offer, acceptance, and mutual consent also imply that the parties intend to create a binding agreement. That means if one of the parties (or both of them) aren't serious, there isn't actually a contract.

Consideration

All contracts must include consideration, or something of value being exchanged between the contract's parties, to be valid. That thing of value can be either services or money. However, both parties must be giving something. If not, you have a gift, not a contract.

Here is an article about consideration in contracts.

Competence

Parties to an agreement must all be of sound mind for a contract agreement to be legally enforceable. In other words, the agreeing parties must be able to understand the situation and what is being required of them. Competence also requires that:

  • Neither parties are minors
  • Neither parties are mentally deficient
  • Both parties are sober, i.e. not under the influence of alcohol or drugs, when they sign the contract

If a party to a contract is not competent, that means the contract is not considered valid. The party that is not competent can ignore, or disavow, the contract in that case.

Legal Purpose

For a contract to be enforceable, it must be a contract for a legal purpose. In other words, a contract for something illegal, such as prostitution or selling drugs, is not enforceable in a court of law.


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Other Important Aspects of a Contract Agreement

While the above components are required to make a valid contract, there are other important aspects that anyone creating a contract should be aware of. Things to keep in mind include:

Researching Local Regulations

Contracts should incorporate local regulations that could apply to the specific situation of the agreement. Industry and/or union regulations may also apply and should be included in the contract. Examples to consider include:

  • Requirements for insurance
  • Noise and other restrictions
  • Required fees
  • Required licenses or planning permissions

Defining Specific Details

Good contracts don't leave anything to chance. You'll want your contract to include all details relevant to the agreement you're entering into. Even if something seems obvious to you, it may not be clear to the other party, so make sure your contract defines any key terms as well as exact services or products.

Important details to cover include:

  • Contact information for all parties
  • Time period the contract covers, including start and end dates
  • Definitions of key terms
  • Services of products you are providing or receiving
  • Liability requirements
  • Insurance requirements
  • Terms of payment, including due dates, milestone payments, and/or part payments
  • Interest and/or fees required for late payments
  • Dispute resolution processes
  • Breach-of-contract processes
  • Any other special conditions

Contract agreement

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Types of Contract Agreements

Various categories of contracts exist. Examples include:

Unilateral Contracts

These contracts are usually one-sided. One party makes all promises in this type of agreement. Item repairs and maintenance agreements are examples of this type of contract.

Bilateral Contracts

Both parties make promises in this type of contract. Bilateral agreements can give parties access to new markets. Real estate contracts are typically bilateral contracts.

Executed and Executory Contracts

An executed contract is simply a completed contract, typically made between two or more individuals. Executed contracts are also possible between a person and entity, or two or more entities. The purchase of a service or product is an example of an executed contract. The terms of an executed contract must be fulfilled right away.

Executory contracts, on the other hand, are contracts with terms that will be fulfilled later on.

Contracts Under Seal

Some agreements require the use of a seal to show the contract is official. This seal can be a wax seal, a seal created using a special stamp to emboss the seal onto the document, or the attachment of adhesive paper.

Working with an experienced contract lawyer can help you make sure your contract includes all the necessary components to protect you and your business given the specific circumstances of your agreement. This way, you'll know that your contract is valid and will stand up in a courtroom if a dispute arises.

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Meet some of our Contract Agreement Lawyers

Thomas S. on ContractsCounsel
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Free Consultation
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28+ years experience. Licensed in Colorado and New York. Areas of expertise: estate planning, wills and trusts; trademark law; patent law; contracts and licensing; small business organization and counseling.

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Jennifer W. on ContractsCounsel
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I am an experienced transactional attorney with substantial experience (10 years, including at a large national law firm and a public company) in the review/markup and drafting of a wide variety of commercial contracts. I am efficient and business-minded and am capable of taking an aggressive or more modest approach, depending on your preferences, leverage, and urgency. I look forward to working with you! https://www.linkedin.com/in/owenkirk/

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Barbara M. on ContractsCounsel
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In 1991, Barbara Markessinis graduated cum laude from Albany Law School in Albany, New York. Shortly thereafter, Barbara was admitted to practice in New York State and in the United States District Court for the Northern District of New York. In 1997, Barbara was admitted to practice in Massachusetts and in April of 2009 she was admitted to the United States District Court for the District of Massachusetts. After graduating from law school, Barbara worked in private practice in the Albany, New York area and for Sneeringer, Monahan, Provost & Redgrave Title Agency, Inc. before joining the New York State Division for Youth and the New York State Attorney General's Real Property Bureau as a Senior Attorney. During her tenure with the Division for Youth, Attorney Markessinis found herself in Manhattan Family Court in front of Judge Judy! A career highlight for sure! After admission to the Massachusetts Bar, Barbara returned to private practice in the Berkshires and eventually started her own firm in June of 2006. Attorney Markessinis offers legal services in elder law, estate planning and administration/probate, family law, limited assistance representation (LAR), real estate and landlord tenant disputes. In 2016, after a family member found themselves in need of long term care, Attorney Markessinis’ launched her elder law practice. Through this experience, Attorney Markessinis discovered that the process of selecting a long term care facility and/or caregiver, applying for MassHealth and preserving an applicant’s assets are serious issues faced by many people every day. This area of the law is Barbara’s passion and she offers her legal services to families who find themselves in need of an elder law attorney. Attorney Markessinis is part of the Volunteer Legal Clinic in the Berkshire Probate & Family Court and has provided limited free legal services to patients and families at Moments House cancer support center in Pittsfield. She currently serves as a Hearing Committee Member for the MA Board of Bar Overseers and is a member of the Berkshire County and Massachusetts Bar Associations, Berkshire County Estate Planning Council (BCEPC). Attorney Markessinis is also the host of WUPE Talks Law. She also serves on the Town of Hancock Zoning Board of Appeals and Planning Board.

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Contract Agreement

Florida

Asked on Sep 4, 2021

Are emails legally binding?

My ex-husband and I discussed getting my son a cell phone, but he was very much against it. We came to an agreement that we would not get him one until the end of the school year, but my current husband bought him one. I am wondering if the email that was written is legally binding. I would like my son to still be able to use the phone, even though my exhusband is still against it, but wanted to make sure the agreement that was made wasn't legally binding.

Ayelet F.

Answered Sep 10, 2021

Early in law school we learned that any bargain for consideration can be legally binding, meaning anything even written on a cocktail napkin can be binding if it contains the elements necessary to deem it a contract. Although I am answering this as a hypothetical and not as your attorney it is very possible for an agreement to be deemed legally binding when done via email if it can meet the threshold of being a contract. The basic elements for a contract or legally binding agreement are offer and acceptance, adequate consideration, capacity and legality of the contract. If an email contains all those elements it can be an agreement that was made through the course of the communication. I would certainly recommend speaking with your divorce attorney or a family law attorney licensed in your state if you are concerned about any possible liability. *The answer above does not constitute legal advice, nor create an attorney-client relationship.*

Read 1 attorney answer>

Contract Agreement

Utah

Asked on Jul 29, 2021

Should I sign a contract if I don't understand what it is saying?

Has a contract with someone where if we disagreed we would go to mediation. They refused to go, they offered us a settlement as long as we signed another contract. I don't understand fully what it is saying.

Donya G.

Answered Oct 5, 2021

Absolutely NOT. You never sign ANYTHING you do not understand because when you sign, you become bound to those terms whether you understood them or not or whether you agree with them or not. Should you later have a disagreement on the contract you signed, the court, or arbitrator will see your signature on the document as a sign that you read, understood and agreed to the terms. You will need to hire an attorney to review the initial agreement to see if they can refuse mediation as well as to look at the new contract and let you know what it says and whether you should sign it or not. I am a contracts attorney and if you you would like my services, you can contact me on the contracts counsel website.

Read 1 attorney answer>

Contract Agreement

New York

Asked on Aug 27, 2021

Case

Do advise if your firm handles breach of contract / business litigation cases.

Nicholas A.

Answered Sep 17, 2021

Yes I do! If you need any assistance, you can visit my website and schedule a free consultation. I can answer any of your questions, provide you with a plan of action, and help you decide whether my firm is right for you.

Read 2 attorney answers>

Contract Agreement

Illinois

Asked on Aug 5, 2021

What is my best path to recover a down payment paid to a contractor who never started my job and has gone MIA while I've been trying to cordially recover my money. Demand Letter via certified mail etc..?

I signed a contract with a contractor to update my home. I signed the contract and paid a $5k deposit (the contract has zero verbiage related to a deposit) to 'get on his list'. After several months and failed attempts to get a specific start date I informed the contractor I was not going to move forward with the project. He said he would pay the deposit back but asked for me to accept $1000 / month. He paid $1000 back however has gone MIA since and is not returning any calls or texts.

Jane C.

Answered Oct 5, 2021

I suggest you have an attorney send a demand letter. If that fails, you can bring you claim against the contractor to small claims court.

Read 1 attorney answer>

Contract Agreement

New York

Asked on Oct 30, 2021

Which law is applicable in moving art piece?

I am moving one art piece from ny to utah and wanted to write a conisgnment agreement, which under which state is the contract enforacble?

Jane C.

Answered Nov 16, 2021

It depends on the terms of the contract. You can stipulate in the contract which state's law you would like to apply. Laws relating to bailments or the UCC would apply.

Read 1 attorney answer>
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