Contractual arrangements are made more frequently in day-to-day management of an agricultural business than many realize. These arrangements span the gamut of financial agreements with lenders, to lease arrangements with neighbors, to work agreements with laborers, to life insurance contracts.

In fact, legally binding agreements between two parties do not even have to be written down. Certain verbal agreements can be just as binding as a written contract signed by both parties.

In essence, any arrangement that spells out the promises made by each party in return for some compensation or benefit constitutes a contract. Such an agreement may also describe what should happen in the case of non-performance. However, this is not strictly required.

Again, how contracts are formed and the regulations regarding their enforcement vary from state to state. In order to minimize this type of risk, a professional legal consultant should be retained to review or draft formal legal agreements between parties before they are put into place.