Contract: Legal Definition, Foundations, Legal Capacity, Breach and Remedies

What is a Contract?

A contract is a legal instrument embodying an agreement that stipulates and regulates the rights and duties of the parties involved, recognised and enforceable by law.

Understanding the Legal Meaning of Contract

At its core, a contract is an agreement between two or more parties that is enforceable by law. It is the legal instrument through which individuals and entities outline the terms of their relationship, whether commercial, professional, or personal.

The concept is deceptively simple, but its implications and applications are vast and varied.

Foundations: Offer, Acceptance, and Consideration

Its legal structure is built upon three primary pillars:

Legal Capacity and Mutual Assent

It’s not enough for parties to exchange promises; the law requires that they do so with a clear understanding and intention.

The parties involved must possess the legal capacity to enter into a binding agreement, which typically excludes certain groups such as minors or individuals with certain mental impairments.

Moreover, there must be a mutual assent or a “meeting of the minds” where the parties agree to the same thing in the same sense.


Contracts can be formal or informal, written or oral, and standard (.e.g., adhesion agreements) or customised.

Certain types of agreements are required by law to be in writing and signed by the parties involved (e.g., real estate transactions, agreements that cannot be performed within a year). Others can be as informal as a verbal agreement or even implied by conduct.

Despite the form they take, binding agreements must adhere to the principles of legality and purpose.

An agreement that involves illegal activities is not enforceable, and if the purpose is not clear, it may lead to disputes that undermine its enforceability.

Test your knowledge: take our contract law formation of a contract quiz

Express vs Implied Contracts

Binding agreements are typically categorised as express or implied. An express contract clearly states the terms and conditions, whether orally or in writing.

Implied contracts, on the other hand, are understood from the circumstances or conduct of the parties involved.

For instance, when a customer sits at a diner’s table, there’s an implied contract that they will pay for the service and food provided.

How does mistake, fraud, or misrepresentation affect a contract?

A mistake, if mutual and concerning a fundamental fact, can render an agreement voidable, allowing the affected party to rescind the contract.

Fraud involves intentional deceit by one party to induce another into a contract, giving the deceived party the right to void the contract and potentially seek damages.

Misrepresentation, even if unintentional but leading one party to enter into a contract based on false information, can also make the contract voidable.

Each of these issues can disrupt the “meeting of the minds” necessary for a valid agreement, undermining the agreement’s legitimacy and possibly resulting in its revocation.

Breach and remedies

When a party fails to fulfil their end of the bargain, they are said to have breached the contract. The law provides a range of remedies, including:

  • Damages: Monetary compensation is the most common remedy, aiming to put the non-breaching party in the position they would have been in if the breach had not occurred.
  • Rescission: The agreement is canceled, and both parties are restored to their original positions.
  • Reformation: The agreement is rewritten to better reflect the intentions of the parties.

Can contracts be modified after they are signed?

Contracts can be modified after signing, but all parties must agree to the new terms. The change should be documented in writing to provide a clear record of the adjustments and to prevent disputes about the terms of the agreement.

This documentation is often referred to as an amendment or addendum to the original contract. Without proper documentation and agreement, modifications may not be legally enforced.

Can silence constitute acceptance of a contract offer?

Generally, silence cannot constitute acceptance of a binding agreement offer. Acceptance must be communicated clearly to the offeror, signifying assent to the terms.

However, if there’s a pre-existing relationship or agreement wherein silence has been established as a means of acceptance, or if the offeree silently takes benefit of services with the opportunity to reject them, silence may be interpreted as acceptance.

Nonetheless, these situations are exceptions to the rule, and the standard legal expectation is an active, affirmative response.

The changing landscape

With the advent of digital communications and transactions, the law is evolving.

Electronic contracts and signatures are now legally binding, and new types of agreements are emerging, such as those involving smart contracts on blockchain platforms.

Furthermore, the increasing globalisation of business means that agreements often cross international borders, bringing into play considerations of jurisdiction and applicable law.


This legal concept is the glue that holds together the integrity of economic and social exchanges. It is a complex instrument with simple beginnings—an agreement.

The layers of legality that surround it, the forms it takes, and the remedies for its breach constitute a vast and intricate field of law.

They are dynamic and must adapt to the shifting sands of societal needs, technological advances, and global interactions.

As such, they remain a topic of constant legal exploration and interpretation, maintaining their status as the cornerstone upon which the edifice of commercial law is constructed.

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