Contract

A general term for a legal agreement between two counterparties and explicitly used to refer to a simple financial transaction such as an exchange of two currencies or a swap. A contract specifies the full details of the transaction. In a trading environment, the verbal agreement usually establishes the binding contract, and the contract note or confirmation merely evidences it. In UK law, to be binding, a contract must have three elements: offer, acceptance, and consideration [Moles, Terry, p. 82]. A contract may also specify how any dispute over its interpretation will be resolved, for example, by arbitration or legal action. Contracts may be contingent; that is, they may stipulate that actions shall be taken only in specific circumstances, for example, in insurance policies. The terms permitted in legally enforceable contracts are governed by legislation [Black, Hashimzade, Myles, p. 80]. The agreement arises from offer and acceptance, but other requirements must be satisfied for an agreement to be legally binding. There must be a consideration (unless the contract is by deed ). The parties must have the intention to create legal relations. This requirement usually operates to prevent a purely domestic or social agreement from constituting a contract. The parties must have the capacity to contract. The agreement must comply with formal legal requirements [Gooch, Williams, p. 75]. It may be oral, written, or even implied from conduct. However, specific contracts are valid only if made by deed (e.g., transfers of shares in statutory companies, transfers of shares in British ships, legal mortgages ) or in writing (e.g., hire-purchase agreements, bills of exchange, promissory notes, contracts for the sale of land made after 21 September 1989 ), and sure others, though valid, can only be enforced if evidenced in writing (e.g., guarantees) [Law, p. 77].

Sources:

Black, J., Hashimzade, N., Myles, G. (2017). A Dictionary of Economics. Oxford: Oxford University Press.

Moles, P., Terry, N. (1997). The Handbook of International Financial Terms. Oxford: Oxford University Press.

Gooch, G., Williams, M. (2015). UK-focused dictionary. A Dictionary of Law Enforcement. Oxford: Oxford University Press.

Law, J. (2018). A Dictionary of Finance and Banking (6 ed.) Oxford: Oxford University Press.