What is a formal contract?

A formal contract is defined as a contract that is in writing, which establishes clear and concrete terms between parties involved. Having a written document helps ensure that both parties have a mutual understanding of their rights and obligations, and it provides evidence in case of disputes. Written contracts typically include details such as the scope of work, payment terms, and deadlines, making it easier to enforce the terms legally.

Additionally, certain types of contracts are legally required to be in writing, such as real estate transactions, contracts that cannot be performed within one year, and agreements to pay someone else's debts. This requirement is often governed by statutes like the Statute of Frauds.

The ability to present a tangible document in a dispute makes written contracts significantly more secure and reliable compared to verbal agreements, which may rely on memory and interpretation. Written contracts help prevent misunderstandings and provide clarity that can be harder to achieve with verbal discussions.