What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


Contract

A contract is a legal agreement where two parties exchange rights or acts under lawful consideration.

Expanded Definition

A properly executed contract will be enforced by the courts. To be legally binding the contract must meet certain requirements. One is there must be consideration. Consideration requires the transfer of money or something of value (i.e., a product or service) under the contract. Hence, the earnest money in a real estate deal makes the contract enforceable without the need to transfer title to the property.

Oral contracts will be enforced by some courts, but most states require that certain contracts such as real estate contracts be written.

Contract enforcement requires bringing suit against the offender in a court of law. If one of the parties in a contract failed to live up to the terms of the contract, the court can force completion of the contract or can assess damages for failure to do so. However, the legal costs and delays associated with a court trial cause most parties to attempt to settle their disagreements by other means when they can. Arbitration is a common one.

Related Fool Articles

Related Community Blogs

Related Terms

Recent Mentions on Fool.com

Advertisement