Leimberg, Satinsky, Doyle, Jackson, Tools & Techniques of Financial Planning, 7th Edition, Chapter 24
Downes, Goodman, Dictionary of Finance and Investment Terms, 5th Edition

Contract
An agreement among two or more parties by which rights or acts are exchanged for lawful consideration. Includes a promise or promises by one or both parties to perform or refrain from performing an act or acts.

Elements of a contract

  1. Agreement - Must be mutual assent by the parties with an offer by one party and acceptance by another. The mutual assent may be in writing or oral.
  2. Consideration - Something of value one party gives to another in exchange for a promise or act. Consideration can be in the form of money, commodities or personal services.
  3. Contractual capacity - The parties must be able to enter into a legally binding agreement. Minors, intoxicated individuals and mentally incompetent individuals are among those deemed to lack capacity to enter into a legally binding contract.
  4. Legality - An agreement to perform an illegal act or contrary to public policy is not an enforceable contract.
  5. Legal form - The contract must be in a form required by law or acceptable by law. Contracts are not always required to be in writing, but all contracts involving real estate must be in writing.

Types of contracts
  1. Express - Parties state the terms of the agreement to which they will be found, usually in writing.
  2. Implied - Terms of agreement can be reasonably inferred by acts of the parties, even if not expressed in writing or orally.
  3. Bilateral - All parties exchange promises to perform.
  4. Unilateral - One party makes a promise in anticipation of some act. There is no reciprocal promise.
  5. Executed - All parties have completed their promises.
  6. Executory - Contract only partially performed or totally unperformed by the parties.

Legal validity

  1. Valid and enforceable - All elements of legal and binding contract present.
  2. Void - Contract without legal force or effect.
  3. Voidable - Contact that can be annulled by either party after signing because it is legally defective or allows one party to rescind the contract.
  4. Unenforceable - A contract that cannot be verified for legal enforcement or fails to meet certain requirements.


Agency

Related Articles
  1. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  2. Managing Wealth

    How Do Futures Contracts Work?

    Futures contracts are one of the most important financial innovations in history, but they are often misunderstood. Find out this contract is used to transfer risk between different parties. ...
  3. Investing

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  4. Investing

    Party City Holdings: How It's Fared Since Its 2015 IPO (PRTY)

    Learn about Party City Holding's performance as a public company. Investors would have lost much more than the Russell 2000 Index by investing after the IPO.
  5. Investing

    5 Free Or Low-Cost Legal Services

    Legal fees have never been more expensive. Here are some ways for you to save on legal fees while still getting reliable advice.
  6. Trading

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  7. Trading

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
Frequently Asked Questions
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The concept of CAGR is relatively straightforward and requires only three primary inputs: an investments beginning value, ...
  2. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors with insight into how efficiently a company (or more specifically, ...
  3. What is the difference between Communism and Socialism?

    Learn how some countries are incorporating socialist methods into capitalism.
  4. What's the difference between a stop and a limit order?

    A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. With ...
Trading Center