Legal Contract Definition: Everything You Need to Know
The legal contract definition is a legally enforceable agreement between private parties that generates mutual obligations. 3 min read
The legal contract definition is a legally enforceable agreement between private parties that generates mutual obligations. In general, contract law is governed by Common Law. Although general overall contract law is common across the country, court interpretations of particular elements of the contract may vary by state.
In order for the agreement to be a legally enforceable contract, it must include mutual assent (including a valid offer and acceptance), sufficient consideration, capacity, and legality. In some states, the element of sufficient consideration can be replaced with a valid substitute. A breach of contract can be remedied by general damages, reliance damages, consequential damages, and specific performance. In some states, the element of consideration can be satisfied by a valid substitute.
Contracts can be written or oral, however, oral contracts are harder to prove, and in many jurisdictions, the window to sue on a contract is much shorter (such as two years for oral contracts compared to four years for written contracts). Some contracts must be in writing, such as real estate sales. A contract may consist of several documents, such as orders, letters, offers, and counteroffers.
Parties can legally agree to supply all another's requirements, buy a certain number of products made, make payments, or renew a contract, among other agreements. The variations are virtually limitless.
If a contract is breached, the law determines remedies to the harmed party. Possible remedies for breach of contract include general damages, consequential damages, reliance damages, and specific performance.
Legal Definition of Contract
A legally valid contract requires the following factual elements:
- an offer
- an acceptance of that offer which results in a mutual understanding
- a promise to perform
- a valuable consideration (which can be a promise or payment of some kind)
- a time or event when the performance must be made
- terms and conditions for the performance
Types of Contracts
A unilateral contract involves a promise to pay or give alternative consideration in exchange for an actual performance. For example, if I say I will pay you $600 to fix my truck by Tuesday, the performance is fixing my truck by that agreed-upon date. A bilateral contract involves a promise exchanged for a promise, for example, if I say I will pay you $600 on Wednesday and you promise to fix my truck on Wednesday.
There are several different types of contracts:
- condition: on a performance occurring
- joint and several: whereas multiple parties make a joint promise to perform, yet each is responsible
- implied: whereas courts will conclude there is a contract, based on the situation
Required Characteristics of a Contract
In order to be considered a legal contract, an agreement must contain all of the following five elements:
- Legal Purpose
In order to be enforceable, a contract must have a legal purpose. A contract is not considered valid if used for illegal purposes. For example, if Adam hires Linda to kill Bobby, outlines an agreement, and specifies a payment amount, the contract for murder is illegal regardless. If Linda fails to fulfill her promise under the contract, Adam will have no legal recourse against her.
- Mutual Agreement
All parties must have reached a "meeting of the minds." At least one party must have offered something to which the other parties have agreed. For example, Suzie signs a contract with Jo's Floral Company. The contract details the scope of the services Jo will provide for Suzie. Suzie and Jo have a mutual understanding and agreement regarding the services that will be provided.
Each party must agree to provide something of value in exchange for a benefit.
- Competent Parties
Each party must be of sound mind, of legal age, and unhindered by drugs or alcohol. If you enter into a contract with a minor or a severely mentally handicapped person, the contract will not be enforceable.
- Genuine Assent
All parties must agree to the contract of their own volition. A contract is unenforceable if mistakes have been made by one or more parties. If one party has committed fraud or exerted undue influence over another, the contract may be voided.
Writing a Legal Contract
As contracts are legally binding, it's imperative to make sure all the necessary elements are absolutely covered before you enter into an agreement.
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