Contract is an agreement between two or more parties that is enforceable by law. A contract consists of voluntary promises to do or not do certain things. Promises in a contract are legal obligations. In the United States, Canada, and other countries that encourage private enterprise, much business activity depends on contracts. Contracts include promises to deliver or pay for goods, to perform or pay for labor or services, and to buy or rent land or other property.
In general, people or companies may include in their contracts any promises or terms they think fit. However, certain contracts are unenforceable. For example, the courts would not enforce an agreement to bribe a public official. They also may not require parties to obey a contract if one of the parties has clearly taken unfair advantage of another. The courts do not enforce contract obligations undertaken by minors or people who are mentally incompetent.
Most contracts are formed by an offer that is followed by an acceptance of the offer. In the majority of cases, the offer and acceptance may be communicated either orally or in writing. However, the law requires that some contracts be put in writing. These contracts include agreements to sell real estate and agreements that are to be performed over an extended period. Such contracts must name all the contracting parties, specify the price and all important terms, and be signed by any party who is to be legally obligated to perform the contract. Some businesses and individuals use electronic signatures, transmitted by computers, to complete contracts over the Internet.
Most contracts are enforceable only if each party gets consideration (something of value) from the agreement. Consideration can be money, property, a promise, or some right. For example, when an owner sells his or her house, the promised home is the consideration for the buyer. The seller’s consideration is the money the buyer promises to pay for the house. Promises that do not involve consideration generally do not create a contract. The promise of the owner to give the house to a friend for nothing cannot be enforced as a contract.
Before a contract is formed, the parties usually discuss or negotiate its terms. If the parties intend to draw up a written contract, they may shake hands on a general deal before all the specific terms have been defined. In some cases, legal obligations are created by the handshake or by other actions performed prior to the signing of a formal document. After the contract has been formed, the parties may continue to negotiate the details of how it should be carried out, especially if the contract is complex. In many such cases, the parties prefer to work out disagreements on their own rather than ask a court to resolve them. In these cases, the contract may serve only as general guidelines governing the future relationship between the parties.
A contract is said to be discharged when the obligations in the agreement have been fulfilled. If either party violates the terms of the contract, a breach of contract occurs. A court may award money damages to the other party, or order the breaching party to perform properly.
