1

contract

noun con·tract \ ˈkän-ˌtrakt \
Updated on: 17 Nov 2017

Definition of contract

1 a : a binding agreement between two or more persons or parties; especially : one legally enforceable
  • If he breaks the contract, he'll be sued.
b : a business arrangement for the supply of goods or services at a fixed price
  • make parts on contract
c : the act of marriage or an agreement to marry
2 : a document describing the terms of a contract
  • Have you signed the contract yet?
3 : the final bid to win a specified number of tricks in bridge
4 : an order or arrangement for a hired assassin to kill someone
  • His enemies put out a contract on him.

Examples of contract in a Sentence

  1. The contract requires him to finish work by the end of the year.

  2. I tore up the contract.

  3. Have you signed the contract yet?

Recent Examples of contract from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'contract.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of contract

Middle English, from Anglo-French, from Latin contractus, from contrahere to draw together, make a contract, reduce in size, from com- + trahere to draw


2

contract

verb con·tract \ transitive verb sense 2a and intransitive verb sense 1 usually ˈkän-ˌtrakt , other senses usually kən-ˈtrakt \

Definition of contract

transitive verb
1 a : to bring on oneself especially inadvertently : incur
  • contracting debts
b : to become affected with
  • contract pneumonia
2 a : to establish or undertake by contract
  • contract a job
b : betroth; also : to establish (a marriage) formally
c (1) : to hire by contract
  • contract a lawyer
(2) : to purchase (goods, services, etc.) on a contract basis often used with out
3 a : limit, restrict
  • contract the scope of their activities
b : knit, wrinkle
  • A frown contracted his brow.
c : to draw together : concentrate
  • He contracted his armies into one force
4 : to reduce to smaller size by or as if by squeezing or forcing together
  • contract a muscle
5 : to shorten (a word) by omitting one or more sounds or letters
  • Contract "forecastle" to "fo'c'sle."
intransitive verb
1 : to make a contract
  • The builder contracted with them to build a deck.
2 : to draw together so as to become diminished in size
  • Metal contracts on cooling.
; also : to become less in compass, duration, or length
  • Muscle contracts in tetanus.

contractibility

play \kən-ˌtrak-tə-ˈbi-lə-tē, ˌkän-\ noun

contractible

play \kən-ˈtrak-tə-bəl, ˈkän-ˌtrak-\ adjective

Examples of contract in a Sentence

  1. She contracted her lips into a frown.

  2. The muscle expands and then contracts.

  3. The hot metal contracted as it cooled.

Recent Examples of contract from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'contract.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of contract

Middle English, from Middle French or Latin; Middle French contracter to agree upon, from Latin contractus — see 1contract

contract Synonyms

Synonyms
catch, come down (with), get, go down (with) [chiefly British], sicken (with), take
Antonyms
balloon, expand, snowball, swell
Related Words
break out (with); die (from), succumb (to); fail, languish, sink, waste (away), weaken, wilt, wither, worsen
Near Antonyms
come back, gain, heal, mend, recoup, recover, recuperate, snap back; rally, rebound, recover (from), shake (off)

Synonym Discussion of contract

contract, shrink, condense, compress, constrict, deflate mean to decrease in bulk or volume. contract applies to a drawing together of surfaces or particles or a reduction of area or length.
    • caused her muscles to contract
shrink implies a contracting or a loss of material and stresses a falling short of original dimensions.
    • the sweater will shrink when washed
condense implies a reducing of something homogeneous to greater compactness without significant loss of content.
    • condense the essay into a paragraph
compress implies a pressing into a small compass and definite shape usually against resistance.
    • compressed cotton into bales
constrict implies a tightening that reduces diameter.
    • the throat is constricted by a tight collar
deflate implies a contracting by reducing the internal pressure of contained air or gas.
    • deflate the balloon

3

contract

adjective

Definition of contract

: hired to execute a contract (see 1contract 1a)
  • a contract worker
  • a contract killer

Recent Examples of contract from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'contract.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of contract


Financial Definition of CONTRACT

forward contract

What It Is

A forward contract is a private agreement between two parties giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time.

The assets often traded in forward contracts include commodities like grain, precious metals, electricity, oil, beef, orange juice, and natural gas, but foreign currencies and financial instruments are also part of today's forward markets.

How It Works

If you plan to grow 500 bushels of wheat next year, you could sell your wheat for whatever the price is when you harvest it, or you could lock in a price now by selling a forward contract that obligates you to sell 500 bushels of wheat to, say, Kellogg after the harvest for a fixed price. By locking in the price now, you eliminate the risk of falling wheat prices. On the other hand, if prices rise later, you will get only what your contract entitles you to.

If you are Kellogg, you might want to purchase a forward contract to lock in prices and control your costs. However, you might end up overpaying or (hopefully) underpaying for the wheat depending on the market price when you take delivery of the wheat.

Forward Contracts Are Not the Same as Futures Contracts
Futures and forwards both allow people to buy or sell an asset at a specific time at a given price, but forward contracts are not standardized or traded on an exchange. They are private agreements with terms that may vary from contract to contract.

Also, settlement occurs at the end of a forward contract. Futures contracts settle every day, meaning that both parties must have the money to ride the fluctuations in price over the life of the contract.

The parties to a forward contract tend to bear more credit risk than the parties to futures contracts because there is no clearinghouse involved that guarantees performance. Thus, there is always a chance that a party to a forward contract will default, and the harmed party's only recourse may be to sue. As a result, forward-contract prices often include premiums for the added credit risk.

Valuing Forward Contracts
The value of a forward contract usually changes when the value of the underlying asset changes. So if the contract requires the buyer to pay $1,000 for 500 bushels of wheat but the market price drops to $600 for 500 bushels of wheat, the contract is worth $400 to the seller (because he or she would get $400 more than the market price for his or her wheat). Forward contracts are a zero-sum game; that is, if one side makes a million dollars, the other side loses a million dollars.

Forward contracts may be "cash settled," meaning that they settle with a single payment for the value of the forward contract. For example, if the price of 500 bushels of wheat is $1,000 in the spot market (the current market price) when the forward contract expires, but the forward contract requires the buyer to pay only $800, then the seller can just settle the contract by paying the buyer $200 instead of actually delivering 500 bushels of wheat and collecting a below-market price. The buyer might appreciate this; the only other way he would see his $200 profit is if he purchased the wheat for $800 and then turned around and sold it at the market price ($1,000). On a side note, when the spot price is higher than the forward-contract price, this is called backwardation; the opposite condition is called contango.

It is important to note that forward contracts also present a risk of price manipulation, because a small transaction completed at an above- or below-market price could affect the value of a much larger forward contract.

Why It Matters

There are two kinds of forward-contract participants: hedgers and speculators. Hedgers do not usually seek a profit but rather seek to stabilize the revenues or costs of their business operations. Their gains or losses are usually offset to some degree by a corresponding loss or gain in the market for the underlying asset. Speculators are usually not interested in taking possession of the underlying assets. They essentially place bets on which way prices will go. Forward contracts tend to attract more hedgers than speculators.


futures contract

What It Is

Futures contracts give the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time.

How It Works

The assets often traded in futures contracts include commodities, stocks, and bonds. Grain, precious metals, electricity, oil, beef, orange juice, and natural gas are traditional examples of commodities, but foreign currencies, emissions credits, bandwidth, and certain financial instruments are also part of today's commodity markets.

There are two kinds of futures traders: hedgers and speculators. Hedgers do not usually seek a profit by trading commodities futures but rather seek to stabilize the revenues or costs of their business operations. Their gains or losses are usually offset to some degree by a corresponding loss or gain in the market for the underlying physical commodity.

For example, if you plan to grow 500 bushels of wheat next year, you could either grow the wheat and then sell it for whatever the price is when you harvest it, or you could lock in a price now by selling a futures contract that obligates you to sell 500 bushels of wheat after the harvest for a fixed price. By locking in the price now, you eliminate the risk of falling wheat prices. On the other hand, if the season is terrible and the supply of wheat falls, prices will probably rise later -- but you will get only what your contract entitled you to. If you are a bread manufacturer, you might want to purchase a wheat futures contract to lock in prices and control your costs. However, you might end up overpaying or (hopefully) underpaying for the wheat depending on where prices actually are when you take delivery of the wheat.

Speculators are usually not interested in taking possession of the underlying assets. They essentially place bets on the future prices of certain commodities. Thus, if you disagree with the consensus that wheat prices are going to fall, you might buy a futures contract. If your prediction is right and wheat prices increase, you could make money by selling the futures contract (which is now worth a lot more) before it expires (this prevents you from having to take delivery of the wheat as well). Speculators are often blamed for big price swings, but they also provide a lot of liquidity to the futures market.

Futures contracts are standardized, meaning that they specify the underlying commodity's quality, quantity and delivery so that the prices mean the same thing to everyone in the market. For example, each kind of crude oil (light sweet crude, for example) must meet the same quality specifications so that light sweet crude from one producer is no different from another and the buyer of light sweet crude futures knows exactly what he's getting.

The ability to trade futures contracts relies on clearing members, which manage the payments between buyer and seller. They are usually large banks and financial services companies. Clearing members guarantee each trade and thus require traders to make good-faith deposits (called margins) in order to ensure that the trader has sufficient funds to handle potential losses and will not default on the trade. The risk borne by clearing members lends further support to the strict quality, quantity and delivery specifications of futures contracts.

Why It Matters

Futures trading is a zero-sum game; that is, if somebody makes a million dollars, somebody else loses a million dollars. The downside is unlimited. Because futures contracts can be purchased on margin, meaning that the investor can buy a contract with a partial loan from his broker, traders have an incredible amount of leverage with which to trade thousands or millions of dollars worth of contracts with very little of his own money. Further, futures contracts require daily settlement, meaning that if the futures contract bought on margin is out of the money on a given day, the contract holder must settle the shortfall that day. The unpredictable price swings for the underlying commodities and the ability to use margins makes trading futures a risky proposition that takes a tremendous amount of skill, knowledge and risk tolerance.


guaranteed investment contract

What It Is

A guaranteed investment contract (GIC) is an agreement between a contract purchaser and an insurance company whereby the insurance company provides a guaranteed rate of return in exchange for keeping a deposit for a fixed period of time.

How It Works

Let's assume Company XYZ buys a GIC from the ABC Insurance Company on behalf of the employees enrolled in the Company XYZ pension plan. ABC Insurance Company guarantees the return of Company XYZ's original investment and pays either a fixed or variable rate of interest until the end of the contract.

Because this GIC is a general account, ABC Insurance Company will commingle Company XYZ's money with the funds of its other general account GIC customers. If ABC Insurance Company does not manage its funds well or declares bankruptcy, XYZ Company may not receive the contracted return or the original principal.

A general account GIC can be contrasted with a separate account GICs. This type of GIC keeps the underlying assets in separate accounts that are actively managed by the issuer. The issuer receives a fee for this management, and each account is affected by the market value of the underlying assets, although there is usually some guaranteed minimum return.

Why It Matters

A general account GIC's return typically increases with the length and size of the investment. However, general account GICs with fixed rates are vulnerable to inflation--for example, there is a possibility that purchasing a five-year general account GIC will eliminate the opportunity to earn higher returns if interest rates rise during the holding period.

Because of the lack of collateral and reliance on the issuer's creditworthiness, general account GICs typically return more than savings accounts and Treasuries. However, they are still usually considered relatively safe investments.


land installment contract

What It Is

A land contract is a contract in which the buyer of a property agrees to pay the seller in scheduled installments.

How It Works

A land contract allows the buyer of a property to use it while the seller continues to retain the deed. Once the buyer pays the full price specified in the contract, the seller gives him/her the deed to the property.

For example, suppose Bob buys a property from Jack for $100,000. Using a land contract, Bob agrees to pay Jack in monthly installments of $2,000 over the course of 50 months. Once Bob pays Jack the $100,000 in full, Jack signs over the property's deed to Bob.

Why It Matters

Land contracts are an alternative to mortgages with the exception that buyers do not hold the deed to the property. Land contracts are legally binding and allow for any manner of payment structure. Land contracts offer property buyers the option to overpay on installments and pay for the property in a shorter span of time.



CONTRACT Defined for English Language Learners

contract

noun

Definition of contract for English Language Learners

  • : a legal agreement between people, companies, etc.

  • : a document on which the words of a contract are written

  • : an agreement to kill a person for money


contract

verb

Definition of contract for English Language Learners

  • : to make (something) smaller or shorter

  • : to become smaller

  • : to become ill with (a disease)


CONTRACT Defined for Kids

1

contract

noun con·tract \ ˈkän-ˌtrakt \

Definition of contract for Students

1 : a legal agreement
2 : a written document that shows the terms and conditions of a legal agreement

2

contract

verb con·tract \ kən-ˈtrakt , 1 is also ˈkän-ˌtrakt \

Definition of contract for Students

contracted; contracting
1 : to agree by contract
  • The property's owner contracted to build a house.
2 : to become sick with : catch
  • contract pneumonia
3 : to draw together and make shorter and broader
  • contract a muscle
4 : to make or become smaller : shrink
  • Cold metal contracts.
5 : to make (as a word) shorter by dropping sounds or letters

Medical Dictionary

contract

transitive verb con·tract \ kən-ˈtrakt also ˈkän-ˌtrakt \

medical Definition of contract

1 : to become affected with
  • contract pneumonia
2 : to reduce to smaller size by or as if by squeezing or drawing together
  • treatment…inhibits spindle formation and contracts chromosomes
  • —Ernst Mayr
3 of a muscle or muscle fiber : to cause to undergo contraction; especially : to cause to shorten and thicken
intransitive verb
1 : to draw together so as to become diminished in size
2 of a muscle or muscle fiber : to undergo contraction; especially : to shorten and thicken

contractibility

play \kən-ˌtrak-tə-ˈbil-ət-ē, ˌkän-\ noun plural contractibilities

contractible

play \kən-ˈtrak-tə-bəl, ˈkän-ˌ\ adjective

Law Dictionary

1

contract

noun con·tract \ ˈkän-ˌtrakt \

legal Definition of contract

1 : an agreement between two or more parties that creates in each party a duty to do or not do something and a right to performance of the other's duty or a remedy for the breach of the other's duty; also : a document embodying such an agreement — see also accept, 2bargain, breach, cause 4, consent, consideration, duty, meeting of the minds, obligation, offer, performance, promise, rescind, social contract, subcontract, Uniform Commercial Code
Note: Contracts must be made by parties with the necessary capacity (as age or mental soundness) and must have a lawful, not criminal, object. Except in Louisiana, a valid contract also requires consideration, mutuality of obligations, and a meeting of the minds. In Louisiana, a valid contract requires the consent of the parties and a cause for the contract in addition to capacity and a lawful object.
accessory contract
: a contract (as a security agreement) made to secure the performance of another obligation — compare principal contract in this entry
adhesion contract \ad-ˈhē-zhən-\
: contract of adhesion in this entry
aleatory contract
: a contract in which either party's performance is dependent on an uncertain event
bilateral contract
: a contract in which both parties have promised to perform — compare unilateral contract in this entry
commutative contract
in the civil law of Louisiana : a contract in which the obligations of the parties to perform are equal to each other in value
constructive contract
: quasi contract in this entry
contract for deed
: land installment contract in this entry
contract implied in fact
: implied contract in this entry
contract implied in law
: quasi contract in this entry
contract of adhesion
: a contract that is not negotiated by the parties and that is usually embodied in a standardized form prepared by the dominant party
contract under seal
: a contract that does not require consideration in order to be binding but that must be sealed, delivered, and show a clear intention of the parties to create a contract under seal
Note: Contracts under seal were in use long prior to the development of the requirement of consideration. They originally usually were impressed with an actual seal, but today the word seal, the abbreviation L.S., or words such as “signed and sealed” or “witness my seal” may take the place of the seal. Without a clear indication of the parties' intention, however, the presence of a seal, such as a corporate seal, is insufficient to create a contract under seal. Contracts under seal have a substantially longer statute of limitations than contracts based on consideration.
destination contract
: a contract for goods stipulating that the seller assumes the risk of loss from damage to the goods until they arrive at the destination specified in the contract — compare shipment contract in this entry
dual contract
: one of two contracts made by the same parties with regard to the same transaction; specifically : one of two contracts made with regard to the sale of real estate of which one states an inaccurately high price for the purpose of defrauding a lender into providing a larger loan
executory contract
: a contract that sets forth promises that are not yet performed
express contract
: a contract created by the explicit language of the parties — compare implied contract in this entry
formal contract
: a contract made binding by the observance of required formalities regardless of the giving of consideration; specifically : a contract that is a contract under seal, a recognizance, a letter of credit, or a negotiable instrument called also special contract, specialty
forward contract
: a privately negotiated investment contract in which a buyer commits to purchase something (as a quantity of a commodity, security, or currency) at a predetermined price on a set future date called also forward
futures contract
: a contract purchased or sold on an exchange in which a party agrees to buy or sell a quantity of a commodity on a specified future date at a set price : future called also future contract
gratuitous contract
in the civil law of Louisiana : a contract in which one party promises to do something without receiving anything in return — compare onerous contract in this entry
guaranteed investment contract
: an investment contract under which an institutional investor deposits a lump sum of money (as a pension fund) with an insurance company that guarantees the return of principal and a specific amount of interest at the end of the contract term; also : such a contract considered as an investment
  • purchased a guaranteed investment contract
called also GIC
illusory contract \i-ˈlü-sə-rē-, -zə-\
: a contract in which at least one party makes an illusory promise
implied contract
1 : a contract that a court infers to exist from the words and conduct of the parties called also contract implied in fact, implied in fact contract; compare express contract in this entry
2 : quasi contract in this entry
implied in law contract
: quasi contract in this entry
informal contract
: any contract that is not a formal contract called also simple contract
innominate contract
in the civil law of Louisiana : a contract that is given no special designation as to its purpose — compare nominate contract in this entry
installment contract
: a contract in which performance is tendered in installments (as by separate periodic delivery of goods)
investment contract
: an agreement or transaction in which a party invests money in a common enterprise the profits from which are derived from the efforts of others
labor contract
: a contract between an employer and a labor union reached through and containing the results of collective bargaining : collective bargaining agreement
land installment contract
: a contract for the purchase of real property in which the seller retains the deed to the property or otherwise continues to have an interest in it until the buyer makes payments in installments equal to the full purchase price or as much of the purchase price as agreed upon called also contract for deed, land contract
maritime contract
: a contract directly relating to the navigation, business, or commerce of the high seas or other navigable waters and falling within the jurisdiction of the admiralty court
nominate contract
in the civil law of Louisiana : a contract given a special designation (as sale, insurance, or lease) — compare innominate contract in this entry
onerous contract
in the civil law of Louisiana : a contract in which each party obligates himself or herself in exchange for the promise of the other — compare gratuitous contract in this entry
option contract
: a contract in which a time period is specified within which an offer must be accepted
output contract
: a contract in which the buyer agrees to buy and the seller agrees to sell all of a kind of goods that the seller produces
principal contract
: a contract from which a secured obligation arises — compare accessory contract in this entry
quasi contract
1 : an obligation that is not created by a contract but that is imposed by law to prevent the unjust enrichment of one party from the acts of another party called also contract implied in law, implied in law contract
2 in the civil law of Louisiana : a lawful and voluntary act that benefits another for which the law imposes an obligation on the beneficiary or a third party to compensate the actor — compare offense 2
requirements contract
: a contract in which the seller agrees to sell and the buyer agrees to buy all of a kind of goods that the buyer requires
shipment contract
: a contract in which the seller bears the risk of loss from damage to the goods only until they are brought to the place of shipment — compare destination contract in this entry
simple contract
: informal contract in this entry
special contract
1 : a contract containing provisions and stipulations not ordinarily found in contracts of its kind
2 : formal contract in this entry
substituted contract
: a contract between parties to a prior contract that takes the place of and discharges the obligations under the prior contract — compare accord 3, novation
synallagmatic contract
in the civil law of Louisiana : bilateral contract in this entry
unilateral contract
: a contract in which only one party is obligated to perform — compare bilateral contract in this entry
yellow-dog contract
: an illegal employment contract in which a worker disavows membership in and agrees not to join a labor union in order to get a job
2 : an insurance policy
3 : the study of the law regarding contracts usually used in pl.

Origin and Etymology of contract

Latin contractus from contrahere to draw together, enter into (a relationship or agreement), from com- with, together + trahere to draw


2

contract

transitive verb

legal Definition of contract

1 : to undertake or establish by a contract
2 : to purchase (as goods or services) on a contract basis often used with out
intransitive verb
: to make a contract


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