contract

Contract is an agreement between parties, creating mutual obligations that are enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: 

In some states, elements of consideration can be satisfied by a valid substitute. Possible remedies for breach of contract include general damages, consequential damages, reliance damages, and specific performance.

Contracts are legally enforceable promises. Most contract law derives from state common law, though statutory law supplements it. While the general principles are consistent nationwide, state courts may interpret individual elements differently. A party that breaches a valid contract may be required to pay damages or, in rare cases, perform the promised act.

Elements of Consideration and Mutual Assent

A contract arises when a promise gives rise to a legal duty. A promise is enforceable only if supported by adequate consideration, meaning something is exchanged to induce the promise. Two principal theories define consideration:

  • Bargain-for-Exchange Theory: Consideration exists when the promisor makes a promise in exchange for something given by the promisee to induce that promise. The focus is on the parties’ intent and the reciprocal nature of the exchange.
  • Benefit-Detriment Theory: Consideration exists when the promise results in a legal benefit to the promisor or a legal detriment to the promisee. Gratuitous promises (pure gifts) are not enforceable because they lack a sufficient detriment or exchange.

Governing Law

Contract law arises primarily from:

  • Common law (judge-made law),
  • Statutory law, such as the Statute of Frauds, which requires certain contracts to be in writing, and
  • Private law, meaning the terms agreed to by the parties.

Even informal agreements may be binding if the elements of contract formation are present. In Lucy v. Zehmer, 196 Va. 493 (1954), the Virginia Supreme Court upheld a contract written on a restaurant napkin because both parties demonstrated mutual assent and consideration.

The Restatements of Contracts synthesize many common-law principles, while the Uniform Commercial Code (UCC) governs contracts for the sale of goods. Relevant UCC articles include:

Internationally, the United Nations Convention on Contracts for the International Sale of Goods (CISG) governs cross-border sales contracts for member states, including the United States.

Remedies for Breach of Contract

If an agreement lacks the necessary elements of a legally enforceable contract, the courts will neither compel performance nor grant damages for nonperformance. For valid contracts, remedies are designed to make the non-breaching party whole (meaning in the position they would have occupied had the contract been performed), including any reasonably foreseeable consequential damages resulting from the breach. Punitive damages are not available for breach of contract, and the non-breaching party may not recover more than the contract’s expectancy value or the monetary benefit that full performance would have provided.

In limited circumstances, promises that do not constitute enforceable contracts may still be enforced to prevent injustice. Under the equitable doctrine of promissory estoppel, a court may award reliance damages if one party reasonably and detrimentally relied on another’s promise. Similarly, a court may award restitution or unjust enrichment when one party confers a benefit on another, and it would be inequitable for the recipient to retain that benefit without compensation. 

Contracts of Adhesion

Modern contract law scrutinizes contracts of adhesion, or standardized “form contracts” that are drafted by one party with greater bargaining power and presented on a take-it-or-leave-it basis. Common examples include mortgage agreements, consumer lease agreements, and online service contracts. Courts may decline to enforce unconscionable or unfair terms in such agreements.

Federal Material

U.S. Constitution and Federal Statutes

Federal Agency Regulations

  • Code of Federal Regulations: 41 C.F.R. (Public Contracts)

State Material

International Material

Additional Resources

[Last reviewed in October of 2025 by the Wex Definitions Team]

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