What Is a Contract Agreement?

Updated January 29, 2024
9 min read
What Is a Contract Agreement?


Every day, businesses enter into new relationships. And for our economic system to work, businesses of all types have to be able to trust in the agreements they make with others. Whether it’s a supplier or customer, your employees, contractors, or any other business partner — every company needs to know that the other party will keep its side of the bargain.

That’s why contract law has evolved over time. With it, parties can transmute their agreements into legally binding contracts, providing the assurance that they will be enforceable in court. But what is contract agreement? In this article, we delve into what you need to understand when considering your contracts.

What Is the Difference Between an Agreement and a Contract?

An agreement simply refers to a typical arrangement or understanding between the parties. By itself, an agreement might not be legally binding — because the parties don’t intend it to be so.

Example: The driver who delivers the stock to a retail store each week might agree to call the store owner ten minutes before arrival so the owner can meet her at the back door. This is an informal agreement. They don’t intend for it to be legally binding.

A contract is an agreement that the parties intend to be legally enforceable. This intention might be obvious (for example, because it is expressly recorded in a document they have both signed) or implied from their actions or circumstances.

Example: The store owner contracts with the supplier to deliver new stock each week, that the products will arrive in good condition, and the store owner will pay the supplier within seven days of delivery. The parties do intend for these obligations to be legally enforceable.

Another example is whenever a business finds new vendors, a vendor contract is required to ensure there are no safety and other risks.

What Are the Elements of a Contract?

Understanding the contract agreement meaning is crucial when diving into the elements of a contract. For the courts to treat such an agreement as enforceable, the following elements must be present:

  • Offer — One person promises to another to enter into a contract on specific terms.

  • Acceptance — The other person decides to accept that offer.

  • Consideration — Both parties are agreeing in their arrangement to exchange something of value, such as money, goods, or services.

  • Intention to be legally bound — Both parties intend for the arrangement to be legally binding.

Several other factors can also be considered when deciding if the parties have a binding contract, such as:

  • Whether the parties have the legal capacity to enter into the contract (for example, that a party was not under duress or the influence of drugs or alcohol at the time of making the contract).

  • Questions about whether a person has sufficient authority to enter into the contract (for example, whether a person is authorized to sign on behalf of an organization).

  • Whether the contract is for an illegal purpose or involves illegal conduct.

Does a Contract Need To Be in a Specific Form?

Contract law facilitates trade and commerce by ensuring parties keep their promises. Except in some specific scenarios, the form of the promises is usually less important than their substance.

This means that a contract agreement between two parties can exist in different forms:

  • Oral. A binding contract can be created orally — in person or on the phone. The problem with this approach is that it can be difficult to prove later what the agreed terms were (or, in fact, that a contract was concluded at all!)

  • Written document. This could range from a quick and straightforward few lines of text to a much longer and heavily negotiated document. The terms of the contract might also be split across multiple documents (as is the case with a master services agreement and each service order).

  • Deed or contract under seal. Some written contracts are more formal and are “signed under seal.”

  • Conduct. The existence or terms of a contract might be implied from the parties’ conduct.

  • Electronic. A contract can be concluded electronically. Examples include an exchange of email, clicking a button on a website (known as a clickwrap contract), or simply continuing to use a website service after the user is notified of the terms and conditions (a browsewrap contract).

It’s even possible that the contract terms could be based on any combination of these different forms.

What Should Go into a Typical Contract?

Once the parties have decided that they would like to make their agreement binding and establish a written contract, they must consider what terms to include.

There is a trade-off to be made here. A good contract will be drafted and as unambiguous as possible. Ideally, nothing would be left to chance. However, it will be expensive (in terms of time and resources) to consider and negotiate terms for every possible scenario that might occur. That might make sense for a high-value or strategically important project where the stakes are high. On the other hand, the time and expense might not be warranted if the subject of the contract is just not that valuable.

Therefore, contract discussions focus on the issues the parties want to know are covered or that, from experience, are most likely to cause disputes. Examples include:

  • The products or services that are being supplied, including a description or specification for the products, delivery requirements, plus service standards and service levels;

  • The price to be paid;

  • Payment terms, including invoicing arrangements, payment due dates, and interest for late payment;

  • Liability requirements, including exclusion and limitation of liability clauses or indemnity provisions.

  • Dispute resolution processes;

  • The duration (or “term”) of the contract and situations when the contract can be terminated.

What Are Some Different Types of Contract Agreements?

There are several different ways that contracts can be categorized.

  1. Bilateral versus unilateral contracts: Bilateral contracts involve mutual promises, whereas unilateral contracts contain a promise from one party that is accepted by the other party through a specific act.

  2. Executory versus executed contracts: Executory contracts include future obligations, whereas completed obligations characterize executed contracts.

  3. Standard contracts versus contracts under seal: Standard contracts encompass routine transactions, while contracts under seal present formal, binding promises. They are often used when an exchange of consideration may be in doubt.


As you go about the day-to-day business of reviewing and agreeing on new contracts, it's always helpful to reinforce your understanding of the contract agreement definition — the outline of a legally binding relationship between parties, detailing their respective rights and duties. Keeping these basic principles of what forms a contract agreement in mind assists in avoiding mistakes that can lead to significant problems later on. For more information about contracts, visit Lawrina, a reliable resource vendor.

Article by
Yevheniia Savchenko

Yevheniia Savchenko is a Product Content Manager at Lawrina. Yevheniia creates user interface copies for Lawrina products, writes release notes, and helps customers get the best user experience from all Lawrina products. Also, Yevheniia is in charge of creating helpful content on legal template pages (Lawrina Templates) and up-to-date information on US law (Lawrina Guides). In her spare time, Yevheniia takes up swimming, travels, and goes for a walk in her home city.

If you have any questions or suggestions regarding the product or UX content for Lawrina, feel free to contact Yevheniia directly at y.savchenko@lawrina.org or connect with her on LinkedIn.