Chapter 9: Introduction To Contracts Page 1 of 4

Chapter 9: Introduction To Contracts

Common Law
Contracts are primarily governed by state common law, with a clear presentation found in the
Restatements of the Law of Contracts, first promulgated on May 6, 1932. A revised edition — the
Restatement, Second, Contracts — was adopted and promulgated on May 17, 1979.

The Uniform Commercial Code

Article 2 of the UCC governs the sale of tangible personal property in all states except Louisiana. A
sale is a contract involving the transfer of title to goods from seller to buyer for a price. The Code
essentially defines goods as tangible personal property. Personal property is any property other than
real property (land).
Types of Contracts Outside the Code
General contract law governs all contracts outside the Code. For example, the Code does not apply to
employment contracts, service contracts, insurance contracts, contracts involving real property (land
and anything attached to it, including buildings), and contracts for the sale of intangibles such as
patents and copyrights. These transactions continue to be governed by general contract law.

DEFINITION OF A CONTRACT
A contract is not a "thing," but a relationship between parties, which entails mutual rights and duties
contained in a set of promises that the courts will enforce. A contract, then, can be defined as:
"a promise or set of promises for the breach of which the law gives a remedy or the
performance of which the law in some way recognizes as a duty."
A breach is the failure to perform contractual promises properly.
It is important to note that while all contracts are promises, not all promises are contracts. Some
promises are unenforceable and, therefore, are not contracts. For a promise to be enforced, it must
include all essential requirements of a legal, binding contract.

REQUIREMENTS OF A CONTRACT
Mutual Assent — The parties must show by words or conduct that they have agreed to enter into a
contract. The usual method of showing mutual assent is by offer and acceptance.
Consideration — Each party to a contract must intentionally exchange a legal benefit or incur a legal
detriment as an inducement to the other party to make a return exchange.
Legality of Object — The purpose of a contract must not be criminal, tortious, or against public
policy.
Capacity — The parties must have contractual capacity. Some persons, such as adjudicated
incompetents (persons placed under guardianship by a court order), have no legal capacity to contract,
while others, such as minors, nonadjudicated incompetent persons, and intoxicated persons, have
limited capacity to contract.
In some instances a contract must be evidenced by a writing to be enforceable; but in most cases, an
oral contract is binding and enforceable.

SEE CASE OF: Steinberg v. Chicago Medical School

CLASSIFICATION OF CONTRACTS
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Express and Implied Contracts

Parties may indicate their willingness to enter into a contract either in words (express) or by conduct
implying such willingness (implied in fact). Both are contracts, equally enforceable. The difference
between them is merely the manner in which the parties manifest their assent.
Bilateral and Unilateral Contracts
When two promises are exchanged, a bilateral contract is established, and each party is both a
promisor and a promisee. A unilateral contract is where a promise is exchanged for an act.

Valid, Void, Voidable, and Unenforceable Contracts

By definition a valid contract is one that meets all of the requirements of a binding contract.
A void contract is an agreement that does not meet all of the requirements of a binding contract; it is
not actually a contract but merely a promise or agreement with no legal effect.
A voidable contract, on the other hand, is a contract, but because of the way it was formed, the law
permits one or more of the parties to avoid the legal duties the contract creates, making the contract
unenforceable.
An unenforceable contract is a contract, but is unenforceable as there is no remedy for a breach.

Executed and Executory Contracts

Where performance has been fully completed by all parties, the contract is said to be executed.
Executory contracts are those where performance has only been partially completed or not begun.
Thus, every contract that is completely performed will have an executory and executed phase.

PROMISSORY ESTOPPEL
As a general rule, promises are not enforceable if they do not meet all of the requirements of a
contract. One exception is promissory estoppel. Noncontractual promises are enforced under the
doctrine of promissory estoppel in order to avoid injustice, when the promise is made under
circumstances that should lead the promisor reasonably to expect that the promisee would take a
definite and substantial action or forbearance in reliance on the promise and the promisee takes such
action or forbearance.

SEE CASE OF: Gorham vs. Benson Optical

Chapter 9: Introduction To Contracts
Law of Contracts
Requirements of a Contract
Classification of Contracts
Page 3 of 4
CHAPTER SUMMARY
Definition of Contract a binding agreement that the courts will enforce
Common Law most contracts are governed primarily by State common
law, including contracts involving employment, services, insurance,
real property (land and anything attached to it), patents, and copyrights
Uniform Commercial Code Article 2 of the UCC governs the sales of
goods
• Sale the transfer of title from seller to buyer
• Goods tangible personal property (personal property is all property
other than an interest in land)
Mutual Assent the parties to a contract must manifest by words or
conduct that they have agreed to enter into a contract
Consideration each party to a contract must intentionally exchange a
legal benefit or incur a legal detriment as an inducement to the other
party to make a return exchange
Legality of Object the purpose of a contract must not be criminal,
tortious, or otherwise against public policy
Capacity the parties to a contract must have contractual capacity
Express and Implied Contracts
• Express Contract an agreement that is stated in words, either orally
or in writing
• Implied in Fact Contract a contract in which the agreement of the
parties is inferred from their conduct
Unilateral Bilateral and Contracts
• Bilateral Contract a contract in which both parties exchange
promises
• Unilateral Contract a contract in which only one party makes a
promise
Valid, Void, Voidable, and Unenforceable Contracts
• Valid Contract one that meets all of the requirements of a binding
contract
• Void Contract no contract at all; without legal effect
• Voidable Contract a contract capable of being made void
• Unenforceable Contract a contract for the breach of which the law
provides no remedy
Executed and Executory Contracts
• Executed Contract a contract that has been fully performed by all of
the parties
• Executory Contract a contract that has yet to be fully performed
Formal and Informal Contracts
• Formal Contract an agreement that is legally binding because of its
particular form or mode of expression
• Informal Contracts all contracts other than formal contracts
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Promissory Estoppel Definition a doctrine enforcing some noncontractual promises

Requirements a promise made under circumstances that should lead
the promisor reasonably to expect that the promise would induce the
promisee to take definite and substantial action, and the promisee does
take such action
Remedy a court will enforce the promise to the extent necessary to
avoid injustice

Quasi Contracts Definition an obligation not based on contract that is imposed to avoid
injustice
Requirements a court will impose a quasi contract when (1) the
plaintiff confers a benefit upon the defendant, (2) the defendant knows
or appreciates the benefit, and (3) the defendant’s retention of the
benefit is inequitable
Remedy the plaintiff recovers the reasonable value of the benefit she
conferred upon the defendant