What does Contract mean?

A contract is a legally binding agreement created by two or more individuals which regulates and enforces shared mutual obligations made by the parties through a contractual agreement. If one or more parties fail to uphold the terms of the contract, under contract law, the offended party may have the legal right to file a breach of contract claim against the other or sue for compensation in small claims court.

Breach of contract and compensation

If the contract is breached, meaning one party fails to meet the obligations outlined in the contractual agreement, the other party has a right to seek damages or monetary compensation by filing a breach of contract lawsuit against the offending party. Compensation for breach of contract can include injunctions or forced performance required, as per the contract.

Common types of contracts

Contracts can be express or implied, written or oral. They can be used in personal negotiations with another party (i.e., when purchasing a car or home) or they can be used by businesses when selling goods or services.

Contracts are important because they allow the requirements of an agreement to be outlined, thereby expressly documenting the terms that must be abided by each party. For example, if you are selling or buying a product the written business contract will specify the terms and conditions of a business transaction, including how the goods will be sold and delivered. Contracts are also useful in defining the costs for the good and services.

Service contracts are also common. For example, many companies do not sell or manufacture a product, they may, however, offer services or collaborate with other businesses to perform a specific function. For instance, companies may offer computer support, telephone support, or technical support to another company. A contract can specify the duties and responsibilities of the service company to another business or entity.

Does the contract have to be written?

Contracts do not have to be written. In fact, even an oral contract may be valid, in some cases, if the following exists: (1) an offer; (2) an acceptance with the terms of the offer; (3) a meeting of the minds; (4) each party’s consent; (5) consideration; and (6) execution and delivery of the contract.

If one party can prove the elements listed above are present, under some conditions, the contract may be valid. There are exceptions, however, to the types of agreements which can be made orally. For instance, an oral contract to lease real estate for longer than one year is not valid. Loan agreements made by a financial organization which exceeds $50,000 must also be made in writing.

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