NATURE AND CLASSES OF CONTRACTS
NATURE OF CONTRACTS
DEFINITION OF A CONTRACT
A contract is a legally binding agreement. Stated another way, "a contract is a promise or a 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." (Restatement, Contracts, 2d) study hint.
The essence of a contract is that (1) by mutual agreement (2) parties create obligations that can be legally enforced.
ELEMENTS OF A CONTRACT
Elements of a valid contract are: (1) an agreement; (2) competent parties; (3) genuine assent to the contract; (4) consideration given by each party; (5) legal purpose; and (6) proper form of contract. 3.
SUBJECT MATTER OF CONTRACTS
A contract may relate to virtually any type of transaction. Contracts may relate to performance of a service, sale or transfer of ownership of property, or a combination of such transactions. 4.
PARTIES TO A CONTRACT
Parties to a contract may be persons, partnerships, corporations, or governments. There may be more than two parties to a contract (e.g., a credit card transaction). With some exceptions, only the parties making a contract have rights or duties under the contract.
Parties can have special names, such as promisor (party making a promise) and promisee (party to whom a promise is made); lessor (party who leases property) and lessee (party to whom property is leased). Privity of contract means two parties directly contracted with each other.
HOW A CONTRACT ARISES
A contract is created by an agreement. An agreement is made when an offeror makes an offer, and the offeree accepts the offer by making an acceptance. study hints.
A contract cannot be made without both an offer and an acceptance. An offer may be made to a particular person or an offer may be made to the public. Example of a public offer: an owner's offer to pay a reward to anyone who returns the owner's lost pet.
INTENT TO MAKE A BINDING AGREEMENT
Formation of a contract requires that both the offeror and the offeree intend to enter into a legally binding agreement. limitations.
A contract is not created by: (1) a preliminary agreement; (2) an agreement that states future plans of the parties but does not obligate the parties to perform such plans; or (3) statements that merely indicate the parties' desire to do something without actually obligating them to do it.
FREEDOM OF CONTRACT
Subject to certain limits, parties may make any agreement they choose.
CLASSES OF CONTRACTS
A contract may be classified according to: (1) the form of the contract; (2) how the contract was created; (3) the validity or binding nature of the contract or agreement; (4) the extent to which the contract has been performed; or (5) how the offer to contract may be accepted.
FORMAL AND INFORMAL CONTRACTS
Classified according to its form, a contract may be either a: Formal contract: A formal contract is a: (1) contract under seal (seal or equivalent mark is made on or attached to an agreement); (2) contract of record (agreement recorded with a court, such as an agreement to forfeit a bond if a party does not appear at a trial, or an agreement made with an administrative agency); or (3) negotiable instrument (contract that satisfies certain commercial law requirements, such as a check); or Informal (simple) contract: any contract other than a formal contract. limitation.
The UCC, for sales of goods, and statutes in some states do not recognize the binding nature of seals; i.e., agreements are not legally binding merely because they are under seal. study hint.
Formal and informal contracts are both legally enforceable.
EXPRESS AND IMPLIED CONTRACTS
Classified according to how a contract is...
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