Contracts serve as formal agreements between parties, outlining the terms and conditions of their relationship. They provide clarity on each party's responsibilities, rights, and obligations, helping to prevent misunderstandings and disputes. By establishing clear expectations, contracts create a sense of security for all involved. Additionally, contracts are legally enforceable documents, meaning that if one party fails to fulfill their obligations, the other party can seek legal remedies. This legal backing encourages compliance and accountability, ensuring that agreements are honored and that parties can rely on the commitments made within the contract.