Contract Legal Definition:

An agreement between persons which obliges each party to do or not to do a certain thing.

Related Terms: Contract Law , Quasi-Contract , Obligations , Offer , Acceptance , Consideration , Tort , Counter Offer , Warranty , Gift , Aleatory Contract , Agreement in Principle , Breach of Contract , Lex Loci Contractus , Damages , Battle of the Forms , Adhesion Contract , Freedom of Contract

An agreement between at least two persons which is enforceable at law.

As Justice Yanosik of the Alberta Court of Queen's Bench wrote in 406868 Alberta Ltd. v. Westfair Foods Ltd. :

"The essence of contract is agreement. A contract is a legally recognized agreement between to or more persons giving rise to obligations that may be enforced in the Courts. It is not what an individual party believed or understood was the meaning of what the other party said or did that is the criterion of agreement. The contract must be clearly created by the parties language and conduct. From what they have said, done, or written there must be established a bargain or an agreement. It is not necessary that all essential terms of the contract have been agreed upon. Certain essential terms may be implied.

"The test of agreement for legal purposes is whether the parties have clearly and unequivocally expressed their intention to contract and the terms of such contract. It is not what an individual party believed or understood was the meaning of what was said and done. If a contract is not clearly created by the parties language or conduct the Court cannot construct one. It is for the parties to use such language or employ such conduct as will make it plain that they intended a contract.

"Oral contracts are as legally binding and enforceable as written ones, but difficulties can and do arise when one or the other of the parties disputes or denies the contract or essential terms which are asserted by the other. Where there is no single document to which reference can be made in order to decide if a contract exists between the parties, then everything that occurs between the parties relevant to the alleged contract must be considered in deciding the issue."

At common law, a contract requires three elements:

  1. A meeting of the minds (also known as consensus ad idem or an offer coupled with an acceptance) on fundamental or substantial terms;
  2. In common law jurisdictions, that elusive concept of consideration (something must flow from each party); and
  3. Compliance with common law or statute law such as the subject matter of the contract must not be illegal and the parties must be "competent to contract" (corporations or adults but not the mentally disabled).

In civil law, a contract does not require the oft-esoteric element of consideration.

The French Civil Code of 2009 defines a contract at §1101 as:

"A contract is an agreement by which one or several persons bind themselves, towards one or several others, to transfer, to do or not to do something."

Similarly, §1378 of the Quebec Civil Code, albeit in its typical stilted English:

"A contract is an agreement of wills by which one or several persons obligate themselves to one or several persons to perform a prestation."

By agreement of wills it is meant that the agreement is voluntary. Prestation is best described as, with apologies to William Shakespeare, to do or not to do something.

The contribution of contracts and contract law to the world in fostering peace and economies cannot be understated. The most eloquent expression of this phenomena came from Henry Sidgwick:

"Withdraw contract … suppose that no one can count upon the fulfillment of any engagement … and the members of the human community are atoms that cannot effectively combine; the complex co-operation and division of employments that are the essential characteristics of modern industry cannot be introduced among such beings."Suppose contracts freely made and effectively sanctioned, and the most elaborate social organization becomes possible."

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