Understanding Contracts
Practical plain-language legal guidance for students and communities.
Written to help students and families understand legal topics that affect everyday life.
A contract is a legally binding agreement between two or more people. When you sign one, you are making a legal promise. If you break that promise, there can be real consequences.
Contracts are everywhere in daily life: phone plans, gym memberships, employment agreements, apartment leases, car leases, and even app terms of service. Knowing how they work before you sign is one of the most practical legal skills you can have.
QUICK FACTS
What You Should Know First
Three Things Make a Contract Valid
For a contract to be legally valid, it generally needs an offer, acceptance of that offer, and something of value exchanged on both sides (called 'consideration').
Minors Can Often Cancel Contracts
Most contracts signed by someone under 18 can be voided (cancelled) by the minor. This is called the 'right to disaffirm.' There are exceptions, so consult an attorney if needed.
Verbal Contracts Can Be Real
Verbal agreements can be legally binding. The problem is proving what was agreed to. Written contracts are much easier to enforce.
Cooling-Off Period Exists for Some Contracts
The FTC's Cooling-Off Rule gives you 3 business days to cancel certain contracts made at your home or at locations away from the seller's regular place of business.
Clicking 'I Agree' Is a Contract
Courts have generally held that clicking 'I agree' on digital terms of service creates a binding contract, especially when you had a reasonable opportunity to read the terms.
REAL SITUATIONS
What This Looks Like in Real Life
Q.I signed up for a gym membership and now they want to charge me a $200 cancellation fee.
A.Check the contract you signed. If the cancellation fee is clearly written in the terms, it is likely enforceable. If you were misled about the terms when you signed, you may have grounds to dispute it with the company or your state's consumer protection office.
Q.I am 16 and I signed a contract with a music producer. Can I get out of it?
A.Generally yes. Most contracts with minors can be voided by the minor. However, some states have specific rules for entertainment industry contracts. Consult an attorney before taking action to understand your specific situation.
Q.The website's terms of service are 30 pages long. Do I have to read them?
A.Legally, clicking 'I agree' does bind you to those terms. Courts generally enforce them. At minimum, search for key sections about automatic renewals, cancellation policies, and arbitration clauses before agreeing.
WHAT YOU CAN DO
Steps to Protect Yourself
Read the Entire Document Before Signing
Even if it is long, read the whole thing. At minimum, skim every section heading and read anything that mentions money, cancellation, or dispute resolution.
Ask Questions Before Signing
If something is not clear, ask for an explanation in writing. If the other party refuses to explain a term, that is a red flag.
Look for Key Clauses
Specifically look for: cancellation fees, automatic renewal terms, arbitration clauses, what each party is required to do, and what happens if someone does not follow through.
Get Verbal Promises in Writing
If someone promises you something verbally, insist that it be written into the contract before you sign. Verbal promises not in the written contract are very difficult to enforce later.
Keep a Copy of Everything You Sign
Always keep a copy of any contract you sign. You will need it if a dispute comes up later. Store it somewhere you will be able to find it.
MYTHS VS. FACTS
Common Misconceptions
MYTH
Once I sign it, I am stuck with whatever it says no matter what.
FACT
Contracts can be voided for fraud, misrepresentation, impossibility, or if one party lacked legal capacity (like being a minor). They can sometimes also be renegotiated by mutual agreement.
MYTH
Verbal agreements are not real contracts.
FACT
Verbal contracts can be legally binding in many situations. The problem is proving what was actually agreed to without a written record.
MYTH
A contract is only real if a lawyer wrote it.
FACT
Contracts do not need to be written by lawyers to be legally binding. Simple written agreements between people can be fully enforceable contracts.
MYTH
I can never get out of a contract.
FACT
Contracts can be voided or rescinded in specific situations: fraud, mutual mistake, impossibility, lack of capacity, or duress. Minors also generally have a right to void contracts they signed.
KNOW YOUR RIGHTS
Your Core Protections
These rights protect you when entering into contracts as a consumer.
You have the right to read any contract before signing and to take reasonable time to think about it.
Minors generally have the right to void (cancel) contracts they signed before turning 18.
If you were misled or deceived into signing a contract, you may have legal grounds to void it.
The FTC's Cooling-Off Rule gives you 3 business days to cancel certain door-to-door and off-premises sales contracts.
Contracts cannot require illegal activities. Courts will not enforce illegal contract terms.
FAQ
Frequently Asked Questions
Most online subscriptions can be cancelled through your account settings. If not, the cancellation process should be in the terms you agreed to. If you are being unfairly denied cancellation, you may be able to dispute charges with your bank.
An NDA requires you to keep certain information confidential. Read it carefully to understand what you cannot discuss, with whom, and for how long. Some NDAs are very broad.
The other party may sue for damages, meaning they want compensation for what they lost because the contract was not fulfilled. In some cases, they can seek to have a court order the contract performed.
No. Contracts cannot require illegal activities. Courts also will not enforce contracts that are grossly unfair, obtained through fraud, or signed under extreme duress.
Contracts signed under genuine duress may not be enforceable. High-pressure sales tactics that prevent someone from making a free and informed choice can be a legal defense. Document what happened and consult an attorney.
Courts have generally held that clicking 'I agree' on digital terms of service creates a binding contract, especially when you were given a reasonable opportunity to read the terms first.
NEED HELP?
Helpful Resources
FTC: Cooling-Off Rule
The FTC's explanation of your right to cancel certain contracts within 3 days.
Visit ResourceCornell LII: Contracts
Plain-language overview of contract law from the Legal Information Institute.
Visit ResourceConsumer Financial Protection Bureau
Resources for consumers dealing with financial products and agreements.
Visit ResourceSOURCES
Citations and References
LEGAL DISCLAIMER
SHIELD Legal provides legal education and informational resources only and does not provide legal advice. Legal information changes over time and varies by jurisdiction. Nothing on this platform creates an attorney-client relationship. For advice specific to your situation, please consult a licensed attorney in your state. Always verify current law with a qualified professional before taking action.