The Law Dictionary

Your Free Online Legal Dictionary • Featuring Black’s Law Dictionary, 2nd Ed.

What Is a Contract: A Guide for Non-Lawyers

Two people agreeing to a legal contract and signing papers.

Contracts

$39.99
$ 27
99
  •  

Motor Vehicle Sale Form

$ 29
99
  •  
Popular

Contracts, big and small, are everywhere in your everyday life. From signing on the dotted line when you buy groceries with a credit card, to purchasing a home, contracts ensure that agreements happen as anticipated and understood by the parties involved. But what is a contract, exactly? Here, you will better understand what a contract is, contract requirements, and the common types of legal contract in this article.

What Is a Contract? The Basics

Contract as a Document

We know what a contract is in the abstract, but what is a contract in the real world? Simply put, a contract is a legally enforceable promise, typically put into writing — for example, a contract with a cell phone provider. A legal contract defines each person’s rights, responsibilities, and remedies under the agreement to provide services or goods. Specifically, it indicates what legally enforceable remedies will occur if the contract is not completed by one of the parties.

Contract as a Process

When a real estate agent indicates that a house is “under contract,” they are pointing to the very process that developing a contract implies. In this instance, the seller has accepted an offer by a buyer for the sale of a home but requires certain contingencies to be met first. This is a prime example of how contracts can be seen as a process, rather than merely as a document.

The three-step process for most legal agreements is:

  1. Considering the Deal. Each party to the contract will assess the risk and rewards during this early phase of the deal. The parties will negotiate to determine their comfort with each other and with the possible deal.
  2. Consummating the Agreement. This typically occurs after much negotiation about the terms of the contract. When both parties feel their interests in the deal have been met, this phase of the process culminates with formal signatures by both parties as evidence of the arrangement.
  3. Performance and Enforcement. Once the agreement is formalized, each of the parties to the contract must perform their agreed responsibilities. If they do not, the contract must be upheld by legal enforcement.

Required Components of a Contract

A contract must meet several requirements to be considered legally enforceable. Without one of these elements, the contract falters and cannot be upheld by a court. These requirements are:

  • Capable Parties. The parties to the agreement must be able to understand what they are agreeing to. For example, it is usually prohibited to enter into a contract with a minor or someone who is not mentally competent because they do not have a capacity to understand what they are doing.
  • The Offer and Acceptance. There must be an effectively communicated offer regarding what will be provided in that sale of goods or services. Also, there must equally be a clear and definite acceptance of this sale.
  • Legal Purpose. The contract’s purpose must not violate the law.
  • Consideration. There must be an exchange of something of value, usually money, or some form of “quid pro quo” shared between the parties. Courts look at whether there was a “bargained exchange” where the parties feel they have each received something of value.
  • Mutual Assent. The contract must embody a “meeting of the minds” between the parties such that they each understand the terms of contract and they agree to be bound by those terms.

Besides these basic understandings, federal and state laws may impose additional requirements for specific kinds of contracts. What is a contract’s enforceability if it’s not in writing? While some contracts must always be in writing, some contracts can be oral but are much harder to enforce. Contracts will not be considered valid if they are the result of mistake, duress, or fraud.

Types of Legal Contracts

Express Contract

This is the most transparent and common form of contract because all the elements of the agreement are spelled out clearly. This express agreement can be either oral or written. From rental agreements to car purchases, express contracts ensure that the agreement is legally binding and enforceable.

Implied-in-Fact Contract

These agreements are inferred from the relationship between the parties based on mutual agreement and intent. For an implied-in-fact agreement to be enforceable, there must be an unambiguous offer and acceptance, mutual intention to be bound by the agreement, and consideration for the agreement. An example of this is going to a restaurant and ordering food. Because the restaurant expects payment for the meal, the agreement is implied-in-fact.

Implied-in-Law Contract

Also called a “quasi contract,” an implied-in-law contract exists where there may not be a formalized contract. Notably, the courts impose one to prevent the “unjust enrichment,” or undue gain, of one party over the benefit of the other. For example, let’s say a pizza you ordered was mistakenly delivered to (and enjoyed at) another person’s home. An implied-in-law contract is construed and you must then be reimbursed to prevent this unjust enrichment.

Unsure Whether You’ve Entered into a Legal Contract? Contact an Expert Today

Even though you can now answer the question, What is a contract? you may have more specific questions. If you need to speak with a professional because you need to know more about your rights, responsibilities, or remedies under a contract, book a free review of your case today.

Disclaimer

This article contains general legal information but does not constitute professional legal advice for your particular situation. The Law Dictionary is not a law firm, and this page does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This page contains affiliate links. When you buy items through affiliate links on our site we may receive a commission. 

Recent Contract Law Articles