Why do you need a contract? The main reason that you need a contract is to protect your rights when you enter an agreement with another party. For example, if you agree to help someone complete a project in exchange for money, you might have trouble getting the person to pay you if you don't have a valid contract in place.

What Are Contracts?

Contracts are legal agreements between two or more parties. A contract can be either written or verbal, and it creates an obligation between the listed parties. When writing a contract, the parties can outline several factors:

  • The rights of both parties.
  • Each party's responsibilities.
  • Consequences for failure to complete the contract.

At their most basic, contracts formalize a relationship between two parties. In general, written contracts hold more weight than verbal contracts because they are much easier to enforce.

With a legal contract, you can protect yourself from being harmed by the other party and can also reduce the likelihood that you will accidentally breach the agreement. Written contracts can also help to avoid misunderstandings between the two parties, making it more likely that the contract will reach fulfillment.

When there is a disagreement between the parties of a verbal contract, it is possible that the courts will enforce the agreement. If you want to make sure that your contract is binding, however, it's best to write it down. Relying on a verbal contract can be very risky.

A written contract is only valid once both parties have signed it. If your drafted contract has not been signed, it's likely it's not enforceable, although you may be able to use the draft to demonstrate a verbal agreement. Thanks to electronic signature services, it should be relatively easy to have your contract signed.

Before you agree to a contract, you should always consult with a lawyer to make sure that your rights are protected. Many contracts include complicated legal language that is hard to understand, so having an attorney review and explain a contract will help you make sure that you will actually benefit from the agreement.

Why You Need a Contract

You need a contract in order to make sure your rights are protected. In addition to outlining the responsibilities of all parties, contracts should be written to anticipate potential problems and should include a procedure for resolving disputes.

The most common reason to enter into a contract is that you wish to obtain something of value. For example, if you want to buy an item, a contract can make sure that the seller gives you the item after you have provided payment. Or, if you are the seller, the contract can guarantee you get paid for the item.

If you are the owner of a business, a contract can help to protect both you and your business assets. For example, you can use a contract to shield yourself from liability if your business hits a rough patch.

You may also need a contract if you want to prevent your former employees from working for one of your competitors. With a non-compete contract, you can stop your former employee from working for a competitor for a certain time period or in a set geographic location in order to protect your trade secrets and shield your business from harm.

Assuming that you don't need a contract for a small project is a very common mistake. Unfortunately, even minor projects can have their issues, so it's best to have a contract in place to make sure that you are fully protected. Even a short, basic contract can protect all parties involved and will make it more likely that the project will be successfully completed. You can even include provisions in your contract for what should happen if the project faces delays and takes longer than both parties expected.

Contracts can also make sure that you don't have to follow unfavorable rules. For example, if you are an employee of a company and are working without a contract, the company could decide at a later date to ask you to sign a contract that favors them instead of you. Insisting on a contract at the outset will define the relationship and make sure that you understand your responsibilities.

If you need help understanding why you need a contract, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.