CH9: General Introduction to Contracts

Introduction

• Contract : an enforceable agreement between two or more parties

• Everyone regularly enters into binding contracts even if they do not think of it

  • Casual business transactions are contracts

    • Ex : buying cup of coffee, rode bus/subway/trolley car, bought a ticket to upcoming concert online

      • entered a valid contract that gives rise to certain rights and responsibilities to you and the other parties involved

  • Contract significance lies in the rare case of when parties do not perform as promised

• All contracts contain enforceable promises; not all promises are enforceable

  • Moral obligation is different from contractual obligation

• Requirements of a valid contract :

  • Valid offer and valid acceptance to enter into a contract

  • Valid consideration — something of legal value given and received by each party to the contract

  • Each party to the contract has to have the mental/legal capacity to enter into a contract

  • Each party has to freely give their consent to enter into the contract

  • The contract must be for a legal purpose

  • Some not all cases, there must be written and signed evidence of the intent to enter into a contract for the contract to be enforceable

• Any missing element may result in invalid contract

• Verbal agreements are binding in most cases

  • Critical component is intent

Classification of Contracts

• Express Contracts

  • Formed when contracting parties express the contract terms verbally or in writing

  • Offeror : the person who makes an offer to enter into contract

  • Offeree : the person to whom the offer is made

• Implied in Facts Contracts

  • A binding contract entered into without expression of words but implied through actions

• Bilateral Contracts

  • Formed by mutual exchange of promises

  • Both parties make enforceable promises to the other

  • Has two promisors (the party making the promise)

  • Has two promises (the party to whom a promise is made)

  • Once contract formed, there are two obligors (the party having the obligation to perform) and the obligee (the party to whom the performance is owed

• Unilateral Contracts

  • Formed when one party exchanges a promise of future performance to induce another party to take some specific action

  • Exchange of a promise for an act

  • One promisor/obligor and promissee/obligee

  • The promisor makes a conditional promise to the promissee to induct action

  • The obligation only comes into existence if the promissee undertakes the desired action

  • Once the promissee completes the performance, the promisor’s obligated to perform

  • Determination of unilateral vs. bilateral depends on terms offered by promisor

    • If promisor is seeking acceptance through performance, it is unilateral

      • a promise in exchange for an act

    • If promisor is seeking a present commitment for a future performance, it is bilateral

      • a mutual exchange of promises

• Simple Contract

  • Any agreement where the written evidence does not require a specific format

  • Can be oral, written, express or implied

  • Vast majority of contracts are simple contracts

• Formal Contract

  • At common law, most common require written, signed, witnessed and sealed

  • Most jurisdictions have abolished seal

  • Uniform Commercial Code (UCC) abolishes seal for sale of goods

  • Law does require some contracts to follow certain formats

    • Include negotiable instruments

      • E.g. checks, drafts and notes, letters of credit (a promise to honor a demand instrument when it is presented for payment), and recognizances (formal acknowledgments of indebtedness made in court)