A legal contract is an enforceable agreement between two or more parties.

It
may be verbal or written.

Learn more about the requirements for a legal contract.

What Is a Legal Contract?

A contract is essentially a set of promises that can be enforced by law. Typically,
a party promises to do something for the other in exchange for a benefit. A
contract can be written or verbal and involves one party making an offer and
another accepting.

If the contract's promise isn't kept, the harmed party can seek a legal remedy.

How a Legal Contract Works

To be a legal contract, an agreement must have all of the following five
characteristics:

 Legal purpose: A contract must have a lawful purpose to be enforceable.

For example, if one business partner contracted someone to kill another
business partner, but the person took the money without fulfilling the
contract, there's nothing that can be done. A contract of murder for hire is
illegal and the contract is unenforceable.
 Mutual agreement: All parties to the contract must have reached an
agreement. That is, one party must have extended an offer to which the
other parties have agreed. For example, Jim signs a contract with Tom's
Tree Trimming. The contract outlines the scope of the work Tom will
perform on Jim's property. Jim and Tom have a mutual agreement
regarding the work that will be done.
 Consideration: Each party to the contract must agree to give up
something of value in exchange for a benefit. For example, you hire
an independent contractor to repave your driveway. You and the paving
contractor sign an agreement in which you promise to pay a sum of money
in exchange for the paving work. Both you and the contractor have agreed
to give up something of value. You have agreed to pay money, and the
contractor has agreed to perform the paving work.
 Competent parties: The parties to a contract must be competent. That is,
they must be of sound mind, of legal age, and unencumbered by drugs or
alcohol. If you enter into a contract with a person who isn't competent, the
contract can't be enforced.
  Genuine assent: All parties must engage in the agreement freely. A
contract may not be enforced if one or more parties have made mistakes.
Likewise, a contract may be voided if one party has committed fraud or
exerted undue influence over another. For example, you sign a contract in
which you agree to sell your house to your next-door neighbor for $1.
When you signed the contract, your neighbor was threatening you. Clearly,
you made the agreement under duress, so the contract isn't valid.

Some types of contracts must be in writing. For example, real estate sales

contracts must be written in order to be enforceable.

Breach of Contract

If one party fails to fulfill their duties under the agreement, that party has
breached the contract. For example, suppose that you've hired a masonry
contractor to construct a brick patio outside your restaurant. You pay the
contractor half of the agreed-upon price upfront. The contractor completes about
a quarter of the work and then stops. They keep promising they'll return and
complete the job but never do. By failing to fulfill their promise, the contractor has
breached the contract.

If one party breaches a contract, the other party may suffer a financial loss. In the
previous example, you paid for 50% of the work but only received half that much.
You have several options for obtaining compensation: