Financial Dictionary -> General Finance -> Contract

Contracts are agreements between several people (a minimum of two) to do something, not do something, or to promise something; it does not have to be financial related. A contract can come in several formats including a verbal contract (which can be hard to uphold), a written contract or even an implied contract. Not all contracts are legally enforceable.

In terms of enforceability, the best contracts have the following parts: an initial offer, the acceptance of this offer and a consideration for the exchange. It should clearly set out the terms of the agreement without any over the top jargon or double meaning, and should be signed by both (or however many) people involved. All parties have to be mentally and physically capable of signing the contract. Aka they have to understand what they are getting in to. In some cases somebody can stand in as a contract signer, for example if you are looking after sick and elderly relative that needs somebody to take care of things.

Contracts that are hard to enforce or are completely void to begin with include verbal contracts (there is not always a way to prove somebody said something) or contracts that include terms that are illegal to enforce (you can't contract somebody to drive a truck full of stolen merchandise).

An example of a verbal contract could be if you agree to work overtime. An example of a written contract might be when you sign on to work for a company. An example of an implied contract is when somebody is ordering food from a fast food restaurant. It is implied that if you ask for a burger, that the chef will go and make that burger and then you will therefore give them the money for it, but you don't always overtly say "now I agree to give you this $4 sir" you just hand it over.