Even without us realizing, contracts have been a part of our lives ever since. Because contracts, in their simplest sense, are just agreements between a person and another where one promises to do something and the other one agrees.

Most people, when they hear about contracts, would automatically think of written documents that two parties involved would have to sign in the presence of a notary and sometimes not. This is true, but that is not only really what contracts are about. Contracts, whether you believe it or not, could simply be you buying or selling a product or goods. Another would be you being employed, where the translation would be: “I promise to do something if you pay me in return." Other examples such as pre-orders, insurances, partnerships, and rentals, even if they are verbal, are still considered to be contracts.

Yes, even if they are verbal in nature, it doesn’t mean they are invalid. Contracts do not need to be written, as they have no formal form to be valid. However, there are contracts that need to be in written form and in the presence of a notary and witnesses if the transactions are complex and involve a large amount of money or property.


 

What Is a Contract?

A contract is a legally binding agreement between two or more parties wherein, in essence, a person or party promises to do something (obligation) and another accepts the offer (acceptance). What completes a contract is a value being exchanged called "consideration," where, without it, contracts are deemed unenforceable. Once the parties agree on these elements, they are expected to follow what was agreed upon.

Since contracts create obligations that are enforceable, in the eyes of the law, if one party refuses to follow or act on what was agreed upon, the other party has the right to seek legal action against the other. The other party may not automatically face jail time immediately; most of the time, it would simply be indemnification of damages; for example, paying monetarily or agreeing to pay for repairs and other forms of compensation.
 

How a Contract Becomes Valid

A contract will never be valid if these elements are not present. Fraser & Associates Lawyers maintain that the elements below are mandatory to be present in order for a contract to be valid and legally binding.

Offer and Acceptance
A contract is conceptualized by the time a person or a party offers something. The other party accepts the offer, thus resulting in proposing the terms of agreement. The must agree otherwise without mutual agreement it becomes moot.

Consideration
The contract must have a value being exchanged where both parties benefit. These considerations could be money, services, a promise, or an act to do something or not do something.

Capacity
The parties who entered the contract must be of the right age, and they must not be being forced or fraudulent.

Legality
Contracts must abide the law of the land. They must not be contrary or, in other terms, illegal in nature to be valid. A contract that involves illegal activities is null and void or does not have any effect.

Intent
All the parties involved must have the intention to be in agreement, thus “the meeting of the minds” for it to be legally enforceable and valid.

Terms
The terms must be indicated well and clearly in the contract. Absent terms are such as what is being offered, considered, and accepted, and other material information to the document must be present. A legal document that is vague is still valid but is open to disputes later on and usually leads to dissolution.
 

Key Aspects of Contracts


The best thing about legal contracts is the enforceability where if one party is insolvent or is refusing to act upon it, the other can compelled the other to follow what was agreed upon in the contract.

Another aspect is form. Contracts can be written, verbal, or implied. Written contracts are generally preferred because they provide clear proof of the terms, but even verbal or implied agreements can sometimes be legally binding.

The last aspect would be the purpose where parties recognize the contract they are getting into perfectly without confusion and with perfect clarity. Parties must be aware of their corresponding rights and responsibilities to avoid conflicts later on. 

 

Common Examples of Contracts

Contracts appear in many areas of everyday life. Some common types include:

  • Employment agreements – outlining the terms between an employer and employee.
     

  • Sales contracts or purchase agreements – used when buying or selling goods, property, or services.
     

  • Lease agreements – agreements for renting property or equipment.
     

  • Service agreements – contracts between a service provider and a client for specific work or tasks.
     

These examples show how contracts are used to clearly define responsibilities and expectations in different situations, making them an essential part of personal and business transactions.

 

What Happens If You Do Not Follow a Contract?

If one of the parties fails to fulfill their duties and responsibilities, then that would automatically constitute a breach of contract. Even if the other party has fulfilled a partial of what was agreed upon, it is still considered a breach.

Usually, the aggrieved party will ask for compensation for damages first, so there will have to be communications back and forth. If it involves a specific performance, then the breach would lead to termination of that said contract. Sometimes, a cancellation of the contract also happens. But when the aggrieved party has exhausted all of their options and the other party still would not comply, then they can immediately ask the courts for help.

 

Can You Back Out of a Contract After Signing It?

Yes, you can back out of a contract after signing it, but only if the other party would also agree. This is one of the easiest ways for you to get out of a contract already legally binding. Aside from that, it will be hard to get out of the contract simply because “you changed your mind." There has to be a valid reason that has weight for you to get out of the contract.

Some contracts allow contingency clauses in a contract that allow one party to walk away if one of the contingencies fails. This type of clause, however, is commonly found in real estate contracts. Contingencies, for example, are financing contingencies where if the buyer is not approved for financing, the deal falls through. There are such clauses also in business contracts and construction projects.

Other than that, usually contracts are legally binding, so not fulfilling the contract would lead to serious legal consequences. If you are lucky, you may be able to back out but have to pay fees because of the time lost.

A person can also back out of the contract if it can be proven he did not understand, misled, or forced into signing.

 

Are Verbal Contracts Legally Binding?

Verbal agreements, or contracts made by spoken words rather than in writing, can sometimes be legally enforceable. As long as the essential elements of a contract—offer, acceptance, consideration, and legal purpose—are present, a verbal agreement may hold up in court.

However, verbal contracts are often harder to prove if a dispute arises. Without written documentation, it can be challenging to show exactly what each party agreed to, making enforcement more complicated.

For this reason, written contracts are generally preferred. They provide a clear record of the terms and obligations, reducing misunderstandings and offering stronger legal protection for all parties involved.

 

Do All Contracts Have to Be Written?

No, not all contracts have to be written. But contracts that involve transactions with a large sum of money or a property or anything involving a human life should be in writing to acquire the full effect of enforceability.

Transactions as little as buying groceries, offering to mow a person’s lawn in exchange for money, selling a bicycle to a neighbor, product delivery through text, etc. are valid even without being in writing. As long as all elements needed for a valid contract are present, then they are considered valid.

On the other hand, complex and crucial agreements other than what was mentioned earlier, such as, but not limited to, real estate, guarantees, vehicles, and marriage-related agreements must be in writing.


 

Can a Contract Be Changed After It Is Signed?

Yes, a contract can be modified even after it has already been signed and is already active and finalized. This can be done through contract amendment and can only be achieved if all the parties involved in the contract agree to the amendment or changes. One party cannot initiate the changes without notifying the other party or parties involved and getting their consent as well.

For an amendment to be properly executed, it must contain all the new terms such as what is being changed, added, and removed. The contract amendment should also acknowledge the presence of the original document by citing it within to make clear that there was a contract to begin with that was just changed.