104 CANADIAN BUSINESS LAW contract agreement between two or more parties that is enforceable by law What Is a Contract? A contract is an agreement between two or more individuals or entities (usually known as the "parties to the contract") that is enforceable by law. Contracts are extremely common in daily life. You may be surprised to learn that you, as a consumer, are generally a party to a contract every time you buy a cup of coffee shop for groceries, download something from the Internet, take public transportation, use a laundromat, or purchase any other goods or services from a commercial enterprise, either in person or online. A contract may be formed by two or more people communicating with one another (face to face, by telephone, email, or text, etc.), by the interaction of an individual and an electronic agent, or by the interaction of elec- tronic agents. The use of electronic agents is rising with the growth of e-commerce. Contracts occur with equal frequency in the business world. In fact, mutually beneficial contractual transactions are the sustaining force behind most businesses. They also sustain the economy as a whole. In carrying on business, Val-Nam Generation Limited ("Val-Nam") will likely enter into contracts related to leasing retail or office space, purchasing or supplying inventory, storing or transporting goods, providing or receiving marketing, financial, legal, or IT services, and insuring against losses or damages, among others. A contract always involves an agreement; however, not every agreement is a contract. For an agreement to constitute a legal and enforceable contract, it must contain four elements: 1. An intention to create a legal relationship. The parties to a contract must intend to enter into a relationship with each other that binds them in law. 2. Offer and acceptance. A contract requires that one party offer to do something and that the other party accept this offer. A contract cannot be imposed unilaterally on another party without their agreement. 3. Consideration. Consideration is a legal concept that means each party to a contract must provide something of value to the other. An offer to give someone a gift or to provide services for free does not create a contract-a gratuitous promise can usually be withdrawn without any recourse to the expectant beneficiary. 4. Legality. A contract must conform to the law of the land and must not violate public policy. These four essential elements of a contract are discussed in greater detail in Chapter 5 under the heading "Formation of a Contract." Other reasons that agreements may not be legally binding between parties are also discussed in Chapter 5, under the heading "Unenforceable Agreements." In practical terms, a contract's enforceability is perhaps its principal feature. Par- ties are expected to live up to the obligations they assume under the contracts they enter into. In other words, if you enter into a business transaction-say, an agree- ment to purchase inventory-you are expected by the other contracting party, the courts, the business community, and society at large to honour your commitment. Failure on your part to fulfill your contractual obligations is known as a breach of contract, and such a breach can result in serious legal and economic consequences for you. The implications of contractual breach are explored in Chapter 5 under the heading "Consequences of a Breach of Contract." consideration something of value given up by each party to a contract breach of contract failure to fulfill con- tractual obligations 104 CANADIAN BUSINESS LAW contract agreement between two or more parties that is enforceable by law What Is a Contract? A contract is an agreement between two or more individuals or entities (usually known as the "parties to the contract") that is enforceable by law. Contracts are extremely common in daily life. You may be surprised to learn that you, as a consumer, are generally a party to a contract every time you buy a cup of coffee shop for groceries, download something from the Internet, take public transportation, use a laundromat, or purchase any other goods or services from a commercial enterprise, either in person or online. A contract may be formed by two or more people communicating with one another (face to face, by telephone, email, or text, etc.), by the interaction of an individual and an electronic agent, or by the interaction of elec- tronic agents. The use of electronic agents is rising with the growth of e-commerce. Contracts occur with equal frequency in the business world. In fact, mutually beneficial contractual transactions are the sustaining force behind most businesses. They also sustain the economy as a whole. In carrying on business, Val-Nam Generation Limited ("Val-Nam") will likely enter into contracts related to leasing retail or office space, purchasing or supplying inventory, storing or transporting goods, providing or receiving marketing, financial, legal, or IT services, and insuring against losses or damages, among others. A contract always involves an agreement; however, not every agreement is a contract. For an agreement to constitute a legal and enforceable contract, it must contain four elements: 1. An intention to create a legal relationship. The parties to a contract must intend to enter into a relationship with each other that binds them in law. 2. Offer and acceptance. A contract requires that one party offer to do something and that the other party accept this offer. A contract cannot be imposed unilaterally on another party without their agreement. 3. Consideration. Consideration is a legal concept that means each party to a contract must provide something of value to the other. An offer to give someone a gift or to provide services for free does not create a contract-a gratuitous promise can usually be withdrawn without any recourse to the expectant beneficiary. 4. Legality. A contract must conform to the law of the land and must not violate public policy. These four essential elements of a contract are discussed in greater detail in Chapter 5 under the heading "Formation of a Contract." Other reasons that agreements may not be legally binding between parties are also discussed in Chapter 5, under the heading "Unenforceable Agreements." In practical terms, a contract's enforceability is perhaps its principal feature. Par- ties are expected to live up to the obligations they assume under the contracts they enter into. In other words, if you enter into a business transaction-say, an agree- ment to purchase inventory-you are expected by the other contracting party, the courts, the business community, and society at large to honour your commitment. Failure on your part to fulfill your contractual obligations is known as a breach of contract, and such a breach can result in serious legal and economic consequences for you. The implications of contractual breach are explored in Chapter 5 under the heading "Consequences of a Breach of Contract." consideration something of value given up by each party to a contract breach of contract failure to fulfill con- tractual obligations