Contract is an agreement made by two or more persons that is enforceable by law. It consists of voluntary promises to do or not to do certain things. When people make a contract, their promises become legal obligations. Contracts are vital to the economic systems of countries where private enterprise is encouraged. Much of the wealth of free enterprise nations takes the form of such contracts as bonds and promissory notes. Most business activities in these countries depend on contracts. These contracts include promises to deliver or pay for goods, perform or pay for services, pay wages or rent, exchange property, and construct buildings. An agreement that would upset public order is unenforceable. For example, the courts would not enforce an agreement to bribe a public off‌icial. The courts also refuse to enforce an agreement if one party has clearly taken unfair advantage of another. The laws bar some people, chief‌ly minors or the mentally incompetent, from assuming obligations under contract.

Freely made economic decisions are basic elements of the free enterprise system. As a result, a leading principle of contract law is that persons may agree with each other on any terms they think fit. The making of a contract usually involves two important acts: (1) making an offer and (2) accepting the offer. The acts may be verbal or in writing. However, the law requires certain contracts to be made in writing. These contracts include agreements to sell or lease property and, for instance, hire purchase agreements and contracts of employment. Before a contract is formed, the parties usually negotiate the terms of the agreement. One party makes one or several offers. As soon as the other party accepts an offer, the negotiations are over. Under many systems of law, the moment of acceptance is decisive. At that time, the contract is concluded. Government agencies usually negotiate contracts under special rules. They invite all interested parties to submit tenders (offers). Then they accept the most favorable tender.

The financial or other benefit accruing out of a contract is called consideration. When a loan contract is made, the money advanced by the lender is the consideration received by the borrower. The borrower‘s promise to return the money with interest is the consideration received by the lender. A promise for no consideration is not an offer to make a contract. For example, if two friends promise each other to meet for lunch, no consideration is involved. They merely agree to a social engagement, not to a contract.

A contract is said to be discharged after the obligations of the agreement have been fulfilled. If either party violates the agreement, a breach of contract occurs. In that case, a court ordinarily awards money, called damages, to the other party. In enforcing contracts, the courts try to carry out the plain intention of the agreement.