Chapter 12:

Nature and classes of contracts

I. Nature of contracts

A contract=
1. legally binding agreement
2. based on the genuine assent of the parties,
3. made for a lawful object,
4. between competent parties,
5. in the form required by law if any,
6. and generally supported by consideration.

Parties create enforceable duties or obligations: each party is legally bound to do

or to refrain from doing some acts.

Subject matter of contract:

- performance of services
- transfer of ownership of property: a house (real property), a car (personal
property)

Vocabulary: The promisor makes a promise to the promisee. If the promise is

binding, it imposes on the promisor a duty/obligation, and the promisor may be
called obligator. The person who claims the benefit of the obligation is called
the obligee.
The parties to a contract are said to stand in privity with each other, and the
relationship between them is termed privity of contract.

Parties= may be indiv, a partnership, a limited liability company, a corporation,

or a gvt.

How a contract arises: a contract is based on agreement. An agreement arises

when the offeror makes an offer, and the offeree accepts. OFFER + ACCEPTANCE

Intent to make a binding agreement: the parties must have intent to enter into
an agreement that is binding. Sometimes, the parties are in agreement, but their
agreement doesn’t produce a contract.

Freedom of contract: the law doesn’t require parties to be fair, or kind, or

reasonable, or to share gains or losses equitably.

II. Classes of contracts

FORMAL AND INFORMAL contracts:

- Formal contracts= enforced because the formality with which they are
executed is considered sufficient to signify that the parties intend to be
bound by their terms. This category includes:
1. Contracts under seal
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 2. Contracts of record
3. Negotiable instruments
- Informal (or simple) contracts= all the other contracts, without regard to
they are written or oral. They are enforceable not because of the form of
the transaction but because they represent agreements of the parties.

EXPRESS OR IMPLIED CONTRACTS:

- Express contracts= the terms of the agreement of the parties are
manifested by their words (spoken or written).
- Implied contracts= the agreement is shown not by words (written or
spoken) but by the acts and conduct of the parties. That happens when
1. A person renders services under circumstances indicating
that payment for them is expected
2. The other person, knowing such circumstances, accepts
the benefit of those services.

VALID, VOIDABLE OR VOID CONTRACTS:

- Valid contracts= agreement that is binding and enforceable
- Voidable contracts= agreement that is otherwise binding and enforceable,
but because of the circumstances surrounding its execution or the lack of
capacity of one of the parties, it may be rejected at the option of one of
the parties.
- Void contracts= without legal effect. Illegal agreement.

EXECUTED OR EXECUTORY CONTRACTS:

- Executed contracts= contract which has been completely performed.
Nothing remains to be done by either party.
- Executory contracts= something remains to be done by one or both
parties.

BILATERAL OR UNILATERAL CONTRACTS:

- Bilateral contract= the offeror extends a promise and asks for a promise in
return. The offeree accepts the offer by making the promise. One promise
is given in exchange for another.
- Unilateral contract= the offeror may promise to do something or to pay a
certain amount of money only when the offeree does an act.

QUASI CONTRACTS: in some cases, the court imposes an obligation even if

there is no contract. Such an obligation is called quasi contract.
When a person/enterprise receives a benefit from another, even in the absence
of a promise to pay for the benefit, a court may impose an obligation to pay for
the reasonable value of that benefit, to avoid unjust enrichment. 3 elements:
 A benefit conferred on the defendant
 The defendant’s knowledge of the benefit
 A finding that it would be unjust for the defendant to retain the benefit
without the payment
The burden of proof is on the plaintiff to prove all the elements of the claim.
Restitution damages: action brought for the value of the services rendered the
defendant when they was no express contract as to the purchase price =>
quantum meruit (=as much as deserved)
A situation may arise over the mistaken conference of a benefit. Ex: a painter
paints our house instead of our neighbor’s. 2 situations:
- I (owner of the house) observes the initiation of the work from my office
across the street but do nothing to stop the painter. At the end of the day
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 when the work is done, I refuse to pay because “I’ve never asked for that”.
=> quasi contract => I have to pay the painter nevertheless because I
observed the benefit being conferred and I knew that the painter was
expecting a payment.
- I do not know that somebody is painting my house. I discover that at the
end of the day and the painter wants his money. => no quasi contract

Extent of recovery: the plaintiff recovers the reasonable value of the benefit
conferred on the defendant, or the fair and reasonable value of the work
performed, depending on the jurisdiction. The plaintiff cannot recover lost profits
or other kind of damages that would be recovered in a suit for breach of a
contract.