Contracts Ch 1

What is a contract?

A contract may be defined as an exchange relationship created by oral or written agreement between two or more people, containing at least one promise, and is enforceable by law.

What are the key elements of a contract?

Agreement

Exchange

Promise

Enforceable by law

What does the "Agreement" element of a contract refer to?

An oral or written deal between two or more people.

What does the "Exchange" element of a contract mean?

Something of value is given and received.

What is meant by "Promise" in a contract?

At least one person makes a promise.

What does "Enforceable by law" mean in the context of contracts?

The contract is legally binding.

What type of relationship is a contract considered to be?

A voluntary and consensual relationship between two or more parties.

How many parties are needed to form a contract?

At least two, with no upper limit on the number of parties that can be involved.

When is a contract created?

When the parties mutually agree on the essential terms of their relationship and intend to be legally bound by that agreement.

Does the law require both parties to fully agree or be completely satisfied about the contract?

The law doesn't require both parties to fully agree or be satisfied about the contract. Even if the parties don't think alike, as long as their actions and words show that they reached an agreement, it counts.

What does "free will" in contracts mean about decision-making?

"Free will" in contracts doesn't mean that parties are always fully free in their decision-making.

Is it assumed that parties have voluntarily entered into the agreement if they don't have complete freedom?

It is assumed that they haven't voluntarily entered into the agreement.

Are contracts the result of actual negotiations between the parties?

No. Many contracts are not the result of actual negotiations between the parties. Instead, they are often based on pre-drafted standard terms created by one party, meant to apply uniformly to all similar transactions.

How does the law determine if someone is bound by standard contract terms?

Even when there is little or no opportunity to negotiate the terms, a party who agrees to a transaction governed by the other party's standard terms is still likely to be bound by them, as long as their words or actions objectively show agreement. (The law looks at what a reasonable person would think based on those actions - not what a person was thinking privately.)

Does a contract always need to be in writing to be valid?

No. A contract can be legally binding even if it's made orally.

What is the Statute of Frauds?

It's a rule that requires certain types of contracts to be in writing and signed to be enforceable.

Are most contracts covered by the Statute of Frauds?

No. Most contracts are not subject to this rule and can be binding even if oral.

Is it harder to prove an oral contract than a written one?

Yes, oral contracts can be more difficult to prove.

Does the difficulty of proving an oral contract affect its enforceability?

No, proof and enforceability are separate legal issues. Whether or not a contract is legally enforceable is the more important question.

Are all voluntary agreements considered contracts?

No, not all voluntary agreements qualify as contracts. Social agreements, like dinner invitations or movie commitments, are not contracts.

How are social agreements viewed legally?

Social agreements are considered moral or ethical obligations, not legal ones.

How is the distinction between a legal and moral obligation determined?

It is settled by determining the intent of the parties involved.

Does giving a gift or making a charitable donation create a contract?

No, they create a moral obligation, not a legally binding contractual obligation.

What is the primary purpose of a contract relationship?

Exchange—both sides give something to get something in return.

Can a contract involve both short-term and long-term relationships?

Yes. Some contracts last a short time with minimal interaction, while others span years and require ongoing dealings.

What can be exchanged in a contract?

Tangible things or intangible rights; some promises have economic value, others do not.

Do all contracts need to look like typical exchanges?

No. While modern contracts may look different, the core idea of mutual exchange remains central to contract law.

What is required for a contract to exist?

At least one party must make a promise.

What is a promise in the context of contract law?

An understanding to act or not act in a specified way at some future time.

How can a promise be communicated?

It may be expressed in clear terms or implied through actions or circumstances.

When does contract law not apply?

If parties only engage in an instantaneous exchange with no future commitment.

Does a valid contract always require promises from both parties?

No, only one promise is needed for a valid contract.

How can a contract still exist with only one promise?

One party makes a promise for the future, and the other party immediately performs what is required in return.

Why might it seem confusing that only one promise is needed in a contract?

Because a contract is based on exchange, and most involve promises from both parties.

What is an instantaneous exchange?

It's when both sides immediately do everything required, such as paying cash and handing over the item.

What is an instantaneous exchange is also known as?

An Executed Exchange

Why isn't an instantaneous exchange considered a contract?

Because neither party makes a promise or owes anything further after the exchange.

What makes an agreement a contract rather than just an instantaneous exchange?

A contract exists when at least one party makes a promise about future action.

What happens once parties enter into a contract?

They are legally bound to perform the promises they made.

What can the other party do if one side breaks their promise in a contract?

They can use the legal system to force performance or seek money for their loss.

Why don't most contract disputes end up in court?

Because court is expensive, slow, and can harm the relationship, so parties try to settle directly.

What is arbitration, and how is it related to contracts?

Arbitration is a private way to settle disputes, often required by contract clauses, and generally upheld.

How does the possibility of legal action affect contract behavior?

It discourages breaches and gives both sides confidence that there's a way to enforce the deal.

What must the injured party do to start a lawsuit for a broken contract?

File a summons and complaint.

What does the defending party file in response to a lawsuit?

An answer.

What happens before a contract case goes to trial?

Other proceedings take place, and many cases are settled or resolved through a summary process.

In a trial, who decides factual and legal issues?

A jury decides factual issues; a judge decides legal issues (unless the trial is judge-only).

What is the court's first task in a contract dispute trial?

To decide whether a valid contract existed and whether it was breached.

What remedy does a court typically give if a contract is breached?

Compensatory damages (money to cover financial loss)

Does the court usually force the breaching party to perform their promise?

No, specific performance is rare. Courts usually award money damages.

What happens if the breaching party doesn't pay the judgment?

The injured party may collect through execution, where a sheriff seizes and sells property.

What is "execution" in contract law?

It is the legal process used to collect money from a breaching party after a court judgment.

Who carries out the execution process in contract law?

A court official, usually called a sheriff.

What is a "writ" in the context of contract execution?

A document issued by the court authorizing a sheriff to seize property.

What does the sheriff do during execution?

It is sold at a public auction to raise funds to satisfy the judgment.

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What if the breaching party has no property to seize?

The judgment remains unpaid, and little else can be done.

Why is collecting a judgment sometimes difficult?

It can be expensive, frustrating, and result only in a money judgment—not forced performance.

What do many contracts require regarding dispute resolution?

That disputes must be resolved through arbitration or another out-of-court process.

How common are arbitration clauses in standard contracts?

Very common and generally enforceable.

When might an arbitration clause be invalidated?

If a party can prove a legal reason to invalidate it.

Why does public policy usually favor arbitration?

Because it is seen as faster and less formal than going to court.

Is arbitration always the best option for dispute resolution?

No, arbitration has its own problems and is not always ideal.

Who decides the dispute if the parties have agreed to arbitration?

An arbitrator or a panel of arbitrators, chosen as per the contract.

Is an arbitrator's decision usually binding?

Yes, it is usually final and binding.

Can a court review an arbitrator's decision?

Yes, but only on very limited grounds.

Can an arbitration award be enforced like a court judgment?

Yes, it can be enforced just like a court judgment.

What can happen if a party files a lawsuit instead of going to arbitration?

The other party can ask the court to dismiss the lawsuit and compel arbitration.

What will the court do if the arbitration agreement is valid?

Grant the request and force the parties to go to arbitration.

What types of agreements does contract law apply to?

Leases, sales, employment, credit, insurance, construction etc.

Why can't one single set of legal rules apply to all contracts?

Because these types of contracts are very different from each other.

What has each type of contract developed to deal with unique needs?

Its own specific rules.

What are consumer protection laws an example of?

Laws that apply to individuals who buy goods or borrow money but don't apply to businesses.

Despite their specialized rules, what do all contracts have in common?

Common elements that form the general law of contracts.

What is the general law of contracts?

A basic set of principles that applies to all contracts unless a more specific law changes it.

Where might specific laws that change contract rules come from?

Written statutes or court decisions.

Why do readings include examples from all kinds of contracts?

Because the same general rules usually apply to all of them.

Does the type of contract always matter when applying general contract rules?

No, usually it doesn't, but sometimes it does.

What should you always be on the lookout for in contract law?

Whether a law or court decision has changed the rules for a particular kind of contract.

In the American legal system, what is the ability to make contracts and decide on their terms seen as?

It is seen as a part of individual freedom and personal liberty.

What does personal liberty mean in relation to contracts?

It means that people can’t be legally bound to a contract unless they have agreed to it.

What constitutional right is connected to the freedom to make contracts?

The right to own and use property under the due process clause.

Why is the right to deal with things of value protected by the Constitution?

Because contracts involve trading things of value (like goods, services, or rights), and these are all forms of property.

What protects a person’s right to decide whether or not to work under a contract for personal services?

The Thirteenth Amendment protects this right by banning forced labor.

What practical fact supports the idea of contract freedom?

That economic activities work best when people willingly take part and are free to negotiate terms that benefit both sides.

Is contract freedom the only value courts consider in contract cases?

No, courts must also consider public policies.

What are some examples of public policies that courts consider in contract cases?

Stopping illegal activities, protecting the environment, or preventing unfair competition.

How might public policies affect contracts or their terms?

These policies might limit what kind of contracts can be made or what terms are allowed.

When can freedom of contract be restricted?

When other rights or public interests are at stake.

In American contract law, what is considered a very important value?

Freedom of contract is a very important value.

What limits freedom of contract in American law?

Like all freedoms, it has limits. One person’s freedom to make a contract cannot take away someone else’s rights, and the government also has the right to regulate contracts when needed.

What is the ideal situation in a contract?

Ideally, both people in a contract would have equal freedom and power. Each person would willingly agree to the deal and have enough knowledge to understand and talk about the terms.

Why doesn’t the ideal situation always happen in real life?

Often, one person has more experience or power than the other. Sometimes, this difference is so big that the stronger person can say, “Take my terms or leave it.” The weaker person may have no choice and has to agree to unfair terms that mostly benefit the stronger side.

What are contracts of adhesion?

Contracts that are offered on a “take-it-or-leave-it” basis are called contracts of adhesion, because the weaker party has no real choice but to accept the terms.

How does contract law usually view power imbalances?

While this kind of power imbalance reduces the freedom of the weaker party, the law generally accepts that such imbalances are a normal part of a market economy.

Does contract law always interfere with power imbalances?

In many deals, it’s just not possible for both sides to have equal bargaining power or full freedom to negotiate. So, contract law usually does not interfere just because one side had more power and created the terms.

What does the law do to prevent misuse of power in contracts?

To stop misuse of this power, the law includes several rules—some made by judges and others by lawmakers—that help courts step in when a party goes beyond tough negotiation and enters into unfair or improper conduct.

What does the Latin phrase pacta sunt servanda mean?

It means "agreements must be kept."

Where does the phrase pacta sunt servanda come from?

It comes from Canon law.

What does pacta sunt servanda show about contract law?

It shows that there has always been a moral side to contract law—the idea that keeping promises is not just legally required, but also ethically right.

Why should people follow contracts, according to the moral view?

People should follow contracts not only because it helps the economy work smoothly, but also because breaking a promise is morally wrong.