Contract Definition

A contract is a legally-binding promise between two parties. Should one party violate the terms of the contract-known as "breach of contract"-the other party is entitled to seek redress through legal means. Some contracts are very simple and informal-you agree to mow your neighbor’s lawn for two weeks and he agrees to bring you back an awesome souvenir from Tahiti. Other contracts are simply but formal-your bank agrees to loan you $1,000 and you agree to repay the loan per the terms of the contract. Still other contracts are bewilderingly complex-a company agrees to redesign a city’s transportation grid. But the essence of every contract is the understanding that both parties have promised to fulfill their end of the deal.

During financial processes, consumers should be careful before signing paperwork no matter how mundane it appears, because it is almost surely a contract. Subtle examples of this are enrolling in a local gym or placing your child in a dance class-both processes likely require forms, and the forms are likely to be contracts. If you sign, you are legally bound by the terms-even if you didn’t read them. Thought you were paying a monthly fee to use the local gym? That may be so, but the contract you just signed might force you to pay that monthly fee for twenty-four months, whether you use the gym or not!