What is a contract?

This means that once both sides agree to it and sign, they must keep the promises stated in the document—or face the consequences that come with a breach of contract. Contracts are everywhere, from business agreements and job offers to major purchases like cars or real estate. 

Why are contracts important?

• Contracts can prevent misunderstandings by setting up clear terms for things like payment, deadlines, or specific responsibilities. 
• A binding contract is also proof of a commitment between the parties, and contract law can protect you if one side doesn’t follow through—giving everyone some peace of mind.

Types of contracts

Contracts aren’t all the same. They can vary depending on what’s being agreed upon and how the agreement works. Here are some of the types of contracts you might come across:

BILATERAL CONTRACT	UNILATERAL CONTRACT
A contract where both contracting parties make a promise to each other. For example, employment contracts: an employee agrees to work, and the employer agrees to pay.	Only one party makes a promise, and the other party accepts by performing an action. For example, a reward offer: “I’ll pay $100 if you find my lost dog.”
EXPRESS CONTRACT	IMPLIED CONTRACT
A contract where the terms are clearly stated in writing or verbally. Think of a written contract to sell a car, for instance.	A contract where the terms aren’t stated, but actions imply a valid contract exists. Getting a haircut or filling up your car with gas implies you’ll pay after.

Elements of a contract

For an agreement to be legally considered a contract, it needs a few key elements. Without these, a contract may not be valid. Let’s break down the elements of a contract:

Element	Description	Example
Subject	Spells out the main details, like the offer and acceptance.	"I’ll sell you my bike for $100."
Acceptance	The other party agrees to the offer’s terms, which might happen after a counteroffer.	"Deal, I’ll pay $100 for the bike."
Consideration	Something of value is exchanged, like money, a service, or even a promise. In an NDA, one party promises not to share information.	The $100 in exchange for the bike.
Capacity	Each party has the ability and authority to enter into a contract.	Both the buyer and seller are over 18 and mentally capable.
Legal Purpose	The contract must be for something legal.	Selling a bike is legal; selling someone else’s bike without their consent or knowledge is not.
Signatures	All parties understand and agree to the terms of the agreement willingly, then sign.	Both buyer and seller reach mutual assent on the bike sale and sign to prove it.

Each of these elements is essential; missing even one could mean the contract won’t hold up in a dispute. To make sure you don’t miss any, we have prepared an elements of a contract checklist:

A simple way to always be sure you have all the elements of a contract covered is to start with one of our contract templates – just answer a few simple questions, and we will build a personalized document for you. Rocket Lawyer’s documents are designed to save time, make sure all essential parts are included, and offer security for both parties.

How do contracts work?

Once everyone agrees on a contract, each side has to keep their end of the deal. For instance, if a business agrees to pay for lawn care, they need to pay when the job is done. In turn, the lawn care company must finish the job as promised.

If someone breaks the agreement—like not paying or not doing the work—that's called a breach of contract. A breach of contract can lead to serious problems, including legal action. Contracts are important here because of contract law: they keep a record of what everyone agreed on, making it easier to settle issues if they come up.

If you’re unsure about whether a contract’s terms are enforceable or what might happen in a breach, Rocket Copilot Contract Review can walk you through the clauses step by step in plain English.

Now that you know the answer to “what is a contract?” and what the elements of a contract are, you can get started making your own. Remember – using Rocket Lawyer ensures that your contracts are clear, legally sound, and tailored to your needs.

 

Key takeaways A contract is a legal agreement—a promise between two or more parties that must be followed once signed. They are used for jobs, business deals, and major purchases. Contracts help prevent misunderstandings by clearly stating rules about payment, deadlines, and responsibilities, making sure everyone knows what to do. There are different types of contracts: some involve two parties making promises (bilateral), while others require one party to act first (unilateral). Contracts can also be written (express) or based on actions (implied). Breaking a contract has consequences. If someone doesn’t follow the agreement, it’s called a breach of contract, which can lead to legal action.