Chapter Outline
1. The Function of Contract Law
2. Definition of a Contract
3. Elements of a Contract
4. Types of Contracts
5. Interpretation of Contracts11
• Promise is a declaration that something will
or will not happen in the future.
• What is a Contract?
– Contract is an agreement (based on a promise)
that can be enforced in court.
– Formed by two or more competent parties who
agree, for consideration, to perform or refrain
from performing some legal act now or in the
Contract vs. Promise
Promise: A person’s declaration that she will or will not make
something happen in the future.
Promisor: The person making the promise.
Promisee: The person to whom the promise is made.
Contract: An agreement between two or more competent parties, for
valuable consideration, to perform or refrain from performing
some act now or in the future.
Offeror: The person proposing an agreement.
Offeree: The person to whom proposition (the offer) is made.
§3: Elements of a Contract
Agreement (Offer and Acceptance).
Contractual Capacity.
– Legality.
– Genuineness of assent.
– Form.
§1: Function of Contract Law
• Designed to provide stability and
predictability, as well as certainty, for both,
buyers and sellers in the marketplace.
• Necessary to ensure compliance with a
promise or to entitle the innocent party to
some form of relief.
Objective Theory of Contract:
The parties’ assent is judged not by the
subjective intent of each party, but by the
objective intent that a reasonable person,
similarly situated would understand the
parties to have.
Types of Contracts
1. Bilateral or Unilateral
2. Express, or Implied in Fact, or Quasi
3. Formal or Informal
4. Executed or Executory
5. Valid, Void, Voidable, or Unenforceable
§4: Types of Contracts
Every contract has at least two parties: the
Offeror and the Offeree
Bilateral Contracts
--Offeror and Offeree exchange promises
with each other (a promise for a promise).
--A contract is formed when Offeree
promises to perform.
§4: Types of Contracts
Unilateral Contracts:
Offeror wants performance in exchange for
his promise (a promise for and act).
Contract is formed when Offeree performs.
Rewards are good examples.
Revocation of Offer: modern view is that
offer is irrevocable once the Offeree
substantially performs.
Types of Contracts
• Express v. Implied In Fact.
– Express: Words (oral or written).
– Implied In Fact: Conduct creates and defines
the terms of the contract. Requirements:
• PL furnished good or service
• PL expected to be paid
(Assumed: DEF knew, or should have known, payment was
• DEF had chance to reject and did not.
– Case : Homer v. Burman (2001).
Types of Contracts [3]
• Quasi Contracts - Implied in law.
– Fictional contracts created by courts.
– Imposed on parties for the interest of fairness
and justice.
– Equitable remedies.
– Quantum Meruit (i.e. whatever is deserved)
• Case : Industrial Lift v. Mitsubishi (1982).
Types of Contracts [4]
• Formal v. Informal.
Formal: require special form or method
to be enforceable, e.g., under seal.
Informal: all other contracts.
Types of Contracts [4]
Executed v. Executory.
– Executed - A contract that has been fully
performed on both sides.
– Executory - A contract that has not been fully
performed on either side.
Enforceability (i.e. will a court enforce
• Valid.
the k?)
– Four Elements: Agreement, consideration, contractual
capacity, and legality (legal purposes).
• Void.
– No contract.
• Voidable.
– Valid contract can be avoided or rescinded by one of the
• Unenforceable.
– A k which is otherwise valid but is unenforceable because
of some statute or C/L rule (e.g. improper form, SOF, etc.).
§5: Interpretation of Contracts
• Plain Meaning Rule: Courts give terms their obvious
• Ambiguous Terms. If terms are ambiguous, court will
attempt to interpret ambiguous contract terms in a
reasonable, lawful, effective manner.
– Contracts are interpreted as a whole.
– Terms negotiated separately given greater weight.
– Ordinary, common meaning given.
Interpretation of Contracts
• Ambiguous Terms (cont’d)
– Specific wording given greater weight than general
– Written or typewritten given greater weight than
– Ambiguous terms interpreted against the drafter.
– Trade usage, prior dealing, course of performance to
allowed to clarify.
• Case : Dispatch Automation v. Richards