CHAPTER
SIX
Contract Law: A
Beginning
What a Contract Is
• A contract is a legally enforceable agreement
between two or more parties.
• In forming a contract each party accepts a legally
binding obligation to perform, and also the legally
binding right to receive, a performance.
• If one party does not perform as agreed, the other
party will be entitled to a remedy at law or a remedy
at equity.
• Generally a social obligation where failure to perform
by one party would not cause legal damages to the
other does not create legally binding contract.
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Essential Elements of a Contract
• The law recognizes four essential elements of
a contract. All four must be present for a
contract to form.
– Agreement: one party makes an offer (offeror); the
person to whom the offer is made (offeree) can accept
or reject the offer.
– Consideration: each party is agreeing to exchange
something of value.
– Competent parties: each party to the contract must be
of legal age, mentally competent and not under the
influence of drugs or alcohol.
– Legal purpose: the contract must not be for a purpose
which is against the law.
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Contract Terminology
• Bilateral Versus Unilateral Contracts
– Bilateral contracts:
• The offeror requests a return promise from the offeree
which shows acceptance of the offer.
• Both parties have promised to perform.
– Unilateral contracts:
• The offer calls for an act.
• Performance of the requested act is the acceptance of
the offer. (An offer in the newspaper of a reward to return
a lost pet is a unilateral offer.)
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Contract Terminology (continued)
• Valid, Void, Voidable, and Unenforceable Contracts
– Valid contract: contains all the essential elements of a
contract: Agreement, Consideration, Competent Parties, and
Legal Purpose
– Void contract: has no legal effect and neither party can
enforce the contract. Void contracts often lack one of the
essential elements of a contract.
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Contract Terminology (continued)
• Valid, Void, Voidable, and Unenforceable Contracts
(continued)
– Voidable contract: a contract where one of the parties can
legally avoid its obligation.
– Unenforceable contract: a contract that is legal in all
respects, except that there is a legal reason that the contract
will not be enforced.
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Formal and Informal Contracts
• A formal contract must be written and contain
certain formalities (e.g. a particular form of
language)
• Informal contracts are often implied
– These contracts do not have to be written unless
required by statute
– If written, the contract should contain the date,
name and address of included parties,
consideration of parties, and signature of parties
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Express Versus Implied Contracts
• Express Contract – a contract where the
agreement’s terms have been specifically
stated either orally or in writing.
• Implied Contracts – the result of a situation
where the actions of the parties indicate that
they did in fact want to form a contract.
– Courts can also imply a contract to promote justice
and fairness and prevent unjust enrichment of one
party. These contracts are known as quasi
contracts.
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Executed Versus
Executory Contracts
• Executed Versus Executory
– An executed contract is one where both sides
have completed their performances.
– An executory contract is one in which neither party
has performed, or one party has performed but the
other has not yet performed. This is often referred
to as “Executed by one side, executory by the
other.”
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Contracts Governed by
Precedent or Statute
• Many contracts in the United States today are
governed by a uniform set of statutes known
as the Uniform Commercial Code.
• Common Law governs all contracts except
where it has been replaced or modified by
statutes such as the Uniform Commercial
Code.
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