# What Are Contracts?

A contract may result from an agreement, but unlike most agreements, a contract is legally binding. A contract is a legally recognized agreement, typically for the transfer of ownership of property, the performance of services, the sale of goods, or a combination of these.

Unlike a simple agreement, a contract is a legally binding obligation between two or more parties. As legally binding, a contract can be enforced under the law, which means that the parties can use the courts to enforce them. A contract may be an obligation to sell property, provide services, sell goods, or perform other specific actions.

Anyone, as long as they are competent to do so, may enter into a contract. Contractual competency, or contractual capacity, is the minimum mental capacity a person is required to have by law in order to enter into a binding contract. By law, three classes of persons are generally not considered to have contractual competency: minors, people with certain mental disabilities, and those under the influence of alcohol or drugs. Parties to a contract may be individuals, sole proprietorships, partnerships, corporate entities, nonprofit organizations, or governments. There are rules regarding minors making a contract. For example, while a minor may not usually enter into a contract, they can enter into a contract for necessities. Further, if they reach the age of majority, they can affirm a contract entered into previously.

#### Bilateral Contracts versus Unilateral Contracts

Another way to classify contracts has to do with the fairness or equality of their terms. In general, courts will not prevent parties from entering into what may be considered an unfair agreement. However, in certain instances, contracts may be unenforceable as contrary to public policy. An unconscionable contract has terms that are extremely one-sided or unfair. An example would be an unusually high interest rate. An adhesion contract is a contract drafted by the party who has much more bargaining power, giving the weaker party only the option to accept the contract as is or reject it. An example would be an insurance policy. While adhesion contracts are standard form contracts, courts generally protect parties from unconscionable provisions. These contracts are typically enforced regarding reasonable provisions, not those that are hidden or highly unreasonable.

Finally, it is possible to classify contracts based on whether they are enforceable. A void contract is not binding, which means that courts will not enforce it. An example would be a contract to sell illegal drugs or commit fraud, because the terms of the contract itself are illegal. Another example would be a contract that lacks a required element, such as the offer, acceptance, or consideration. A voidable contract is one that one party can be void if they so choose. An example would be a contract with someone who is underage or who lacks capacity to enter into the contract. A voidable contract may be converted to an enforceable contract by the actions of one of the parties.