Entering into a contract creates a legal agreement. If you break it, there are legal consequences. However, to enter into a contract that is binding, the contract must meet specific criteria.
The Mississippi Bar explains a binding contract must have an exchange for something valuable or an offer and acceptance. It also needs to be an agreement between at least two people.
The exchange is the whole reason for the contract. One person wants something from the other person. The exchange represents the basics of what each of you will do under the agreement. For example, if you are selling a car, then the exchange is you giving the car to the other party in exchange for money.
It is essential to understand the exchange does not always have to involve money. It does have to be legal. Contracts for exchanges of something illegal are not binding.
The people involved in a contract are also important. You need two parties because you cannot bid yourself into a contract. Both you and the other person must be legally able to enter into such an agreement. Basically, this means you are both at least 18 years old. You must both also be mentally competent and able to understand the concept of a contract and the agreements you make under the contract.
Oral contracts happen all the time and are generally binding, but they are difficult to prove if you end up in court. It is always best to get a contract in writing, and some types of contracts are only valid if in writing.
The offer and acceptance that occurs under a contract serve as the basis to make it legal. You want an exchange of something valuable between two people who can legally make such a commitment to have a legally binding contract.