§ 1.2 Legal Obligation Defined

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It is commonly said that a contract cannot exist even though there have been expressions of mutual assent, unless there is also a legal obligation. This is often defined in purely figurative language. An obligation is ''a legal bond or tie.'' It is a vinculum juris. It is indeed hard to avoid the use of figurative language like this, and for merely literary purposes, it is not desirable to avoid it. While historically the expression may have been more than a metaphor,n1 today an obligation is neither a rope nor a chain.

In English legal history, the term ''obligation'' has been used in a variety of senses. At times it has meant a formal document, such as a sealed bond. Again, it has meant the entire group of jural relations created by certain facts, usually expressions of agreement. The tendency has been to narrow its usage, so that it has come to be an almost exact synonym of the term ''legal duty.'' This is a term that should be used solely as a correlative of the term legal right. If a duty (obligation) exists, it is a duty to some person who has a right against the one subject to the duty. If a legal right exists, it is a right against some person who is under a duty to the one having the right. These two correlative terms express a legal relation between the two persons, this relation consisting of certain specific facts of a kind such as have in the past caused organized society to give remedies against the duty bearer in favor of the right holder.n2 This is what is meant by vinculum juris, and by ''control'' that the holder of the right has over the bearer of the duty. Past judicial and legislative history enables us to look at the specific facts and predict that A can get judgment against B if the latter does not perform as promised. Legal relations are merely existing facts of life viewed in the light of a past uniformity of social action, that enable us to predict similar action in the future with respect to two or more persons.

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawContract InterpretationGeneral OverviewContracts LawGeneral Overview

FOOTNOTES:

(n1)Footnote 1. See Raoul Berger, From Hostage to Contract, 35 Ill.L.Rev. 154 (1940).

(n2)Footnote 2. See Wesley N. Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning (1919) and Arthur L. Corbin's Foreword to the 1964 and later reprints of Hohfeld's work.

§ 1.3 N1 Definition of the Term ''Contract''

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This term has been defined in a good many different ways. Definitions have been constructed by almost all writers on law and in many thousands of judicial opinions.n2 The fact that these definitions are not in agreement has led occasionally to a little confusion; but the harm is not so great as might be expected. Diversity of definition does at times lead to a confused analysis, obscure reasoning, and to unnecessary misunderstanding and litigation. This is, of course, socially harmful; and it occasionally leads to an unjust decision and to uncertainty in the law. It is a very common error to suppose that legal terms, such as contract, have one absolute and eternally correct definition. The fact is that all such terms have many usages, among which everyone is free to select. One usage is to be preferred over another only in so far as it serves our necessity and convenience.n3

A study of its common usage will show that the term ''contract'' has been made to denote three different kinds of things in various combinations: (1) the series of operative acts of the parties expressing their assent, or some part of these acts; (2) a physical document executed by the parties as an operative fact in itself and as lasting evidence of their having performed other necessary acts expressing their intention; (3) the legal relations resulting from the operative acts of the parties, always including the relation of right in one party and duty in the other.

The most quoted definition of the term ''contract'' is that found in Section 1 of both the first and second Restatements of Contracts: ''[a] contract is 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.''n4 This definition does not inform us as to what kind of facts will be operative to create contractual rights and duties; it merely gives us a mode of describing these operative facts after we have found by other means that they do have legal operation. This definition is not particularly useful, and may be positively misleading. It, along with definitions such as ''legally enforceable agreement,''n5 attempts to squeeze, often with a shoehorn, and sometimes with a crowbar, the complexity of the topic into the pigeonholes of ''promise'' or ''agreement.''n6 There are at least two difficulties with the equating of contract with promise. First, much of contract involves judicial imposition of solutions to problems the parties have not addressed or which they have addressed in illegal or unconscionable ways. As Judge Learned Hand wrote in 1940:n7

Consent had for many years been the cornerstone for much of the political thinking of the time; and to make it serve, the judges had gone to great lengths to discover in contracts an initial acceptance of consequences they felt bound to impose on the promisor. It assuaged harsh results, if one could say that the sufferer had agreed to them in advance, and sophistry, as ever, was a facile handmaiden to authority.

Another difficulty with the equating of contract with promise is that it ignores the array of consensual transactions that can be termed ''executed contracts.'' The notion that a contract must be a promise stems from the old writ of assumpsit under which the making of a promise was a necessary allegation. But assumpsit is not the sole progenitor of contract. The writ of debt required no allegation that a promise was made. Covenants were used to make binding promises but also to transfer rights in land and chattels as well as to assign and discharge intangible rights. These transactions were, and often still are, called ''executed contracts.'' Treatises that begin by equating ''contract'' with ''promise,'' often proceed inconsistently to discuss the case law dealing with executed as well as executory transactions in connection with many legal problems such as those caused by allegations of infancy, mental disability, fraud, duress and the like, as well as the proper interpretation of instruments evidencing the transaction, the narrow definition not deterring a more realistic vision of a larger universe. Indeed, both Restatements of Contracts, while offering the definition of contract as promise, contain chapters on the assignment and discharge of contract rights. Clearly, assignments, a form of executed non-promissory transactions, are treated in Restatements and treatises entitled ''The Law of Contracts,'' as are releases and other non-promissory kinds of discharge. Here again, the narrow definition does not deter realistic treatment of the broader topic. Yet, an occasional court or scholar will take the definition too seriously. In so doing, harm may result.

A richer, more helpful, definition is enacted into law by the Uniform Commercial Code for purposes of analyzing transactions dealing with the sales of goods. A fair synthesis of its definitions of ''contract''n8 and ''agreement''n9 is: ''[c]ontract means the total legal obligation which results from the bargain of the parties in fact as found in their language or by implication from other circumstances, as affected by rules of law.'' A more succinct, but related definition has been proposed by Ian Macneil-''the relations among parties to....exchange.''n10 The merit of these definitions is that they acknowledge that a contract establishes a relationship among the contracting parties that goes well beyond their express promises. The promise, or group of promises, or other bargain, is fleshed out by a social matrix that includes custom, trade usage, prior dealings of the parties, recognition of their social and economic roles, notions of decent behavior, basic assumptions shared, but unspoken by the parties, and other factors, most especially including rules of law, in the context in which they find themselves. The entire law of contracts plays a major role in determining the terms of the contract. Macneil's definition also underscores that the economic core of contract is an exchange. This definition, however, does not indicate the role of law in attaching legal effects to the relationship of the parties. The U.C.C. fully recognizes this role.n11

Contract is such a complex subject that a definition may be impossible within the usual space constraints of definitions. Even if a perfect definition were crafted, it would not necessarily be helpful. Nonetheless, the two definitions discussed in this paragraph point away from older ones which attempted to define contract in purely promissory terms and, therefore, give us a more realistic view of what contract is. These definitions propounded by the U.C.C. and Ian Macneil are, however, incomplete in one respect. There are certain contracts that are binding despite the absence of a ''bargain'' or an exchange. These contracts consist of promises that are enforceable under the doctrines of past consideration and promissory estoppel, both of which are encompassed in the otherwise less helpful definition of the Restatements of Contract.

Commonly accepted definitions of contract often exclude those transactions that may be properly described as barters. The definition of contract enacted into law by the Uniform Commercial Code, however, include barters where at least one party is supplying goods to the other. Although a mutual, present and fully effective exchange of lands or chattels, without warranties, creates no executory contractual duties, it is useful to look at the transaction both through the lenses of contract and of property. If A has apples to sell and B has money, A may offer the apples to B for the money. B may accept by delivering to A the possession of the money. Such a transaction is a barter. The character of the commodities exchanged is not material. Such a transaction creates new physical relations, and in an organized society it creates new legal relations. These new relations arise by the voluntary action and consent of the two parties; but there is created no special right in one party by which to compel a subsequent performance by the other. Nonetheless, the law of contract will supply much of the analysis and many of the rules if a dispute arises between the parties. Assume the money handed over is counterfeit or the seeds within the apples are sterile when they were believed by both parties to be fit for propagating a new variety. Where would a lawyer turn to determine the rights of the parties? Among the many possible sources, the lawyer might turn to the Restatement (Second) of Contracts and to this treatise for guidance. In a practical working sense, the transaction may be called a contract.

If the term ''contract'' is used in its secondary sense to denote a document executed by the parties, evidencing their mutual assent, there are many bartering transactions in which such a document that could properly be described as a contract is drawn up. A bill of sale would be a contract in this sense. Its interpretation and construction would be pursuant to the law of contracts.

There is also a property lens to such a transaction. In the case of a fully effective exchange of lands or chattels, there may be no promise made that is ever enforceable at law or that is capable of breach, and there may be no problems of interpretation or of mistake or the like. Such a fully effective exchange, without including any enforceable promise by either party, creates numerous legal relations. These, however, are customarily described as property relations and not as contractual relations. This is because they are relations not merely between the two parties themselves, but between each of those parties and all other persons who are subject to law. The two parties are said to have received rights in rem, a term that is useful, even though likely to mislead some into thinking that such a right is a physical relation to the res. The legal relations created are not special relations between A and B. They involve all persons alike and exist in total independence of the voluntary action or consent of the third persons involved. If, after the completed barter of apples for money, A should forcibly deprive B of the apples sold to him, A is breaking no promise. A is committing no different wrong from that committed by X, if X should do the same; and A is subject to no different penalties. B could maintain no action against A for breach of contract, although B could maintain an action in tort for A's wrongful conversion of the goods.

What has been said above in relation to barter can, in most respects, be said with equal truth in relation to an executed gift. If A has lands or chattels and executes a gift to B, which B accepts, there are acts of offer and acceptance, and there is mutual assent, but there are no contractual rights and duties. As in the case of a barter, the only rights involved are property rights, or rights in rem. The only duties created are those general duties binding upon non-participating persons as well as upon A. The executed gift creates new legal relations. These arise from the voluntary acts of offer and acceptance; but there is no promise and there is no executory contractual right or duty.

It must be observed, however, that transfers of land or chattels may be accompanied by contractual duties as a part of the same transaction. When this is the case there is both a contract and a conveyance. Thus, if A has apples or automobiles or land to sell and B has no money with which to buy, a barter of the property for the money is not possible. However, A may be willing to make a transfer of the property to B in return for B's promise to pay money in the future. If B agrees to this, promises to pay, and receives a conveyance of the property, B comes under new relations in rem with all other members of ordinary society. At the same time B becomes bound by a special duty in personam to A-a duty the like of which B owes to no other person whatever. A's correlative right against B is a contract right. B's rights, with respect to the subject matter of the conveyance, are property rights.

Furthermore, it is very common indeed for a transfer of land or chattels to be accompanied by a warranty of title or of quality, either expressed by the transferor or imposed by law. In such a case, there is a contract as well as a transfer, and the transferee gets both property rights and contract rights.

At times the word ''contract'' is used to refer to the physical document in which the parties have expressed an agreement to which the law will attach legal consequences. This usage is imbedded in the language and is therefore by no means improper. Lawyers, however, should not confuse the contract with the physical document, which is evidence of the contract, but not the contract itself. The contract in the legal sense is the relationship, not the paper.

In a treatise on contract law, as well as in the decisions of litigated cases, the essential problem is not one of definition; and if a solution appears to have been derived from a definition, there can often be found an ''inarticulated major premise'' based on opinions as to societal policy-the prevailing mores in business dealings and other social relations. Therefore, to determine whether a ''contract'' has been made and what are the resulting legal relations is a matter for the entire treatise, not for an introductory chapter. Instead of simplicity and uniformity, we shall find complexity and variation. In the dynamic societies of today, transactions are continually escaping from old forms and patterns; and opinions as to social policy and the general welfare are affected by the conflicts among large groups struggling for a greater share of power, wealth and other objectives. New classifications are continually required, and old generalizations must be continually limited or replaced. The expression and communication of these rules must be stated in words that can be defined; but the definitions are merely ''working definitions'' that are useful only insofar as they aid in conveying our thoughts to others, and the rules are merely tentative ''working rules'' that become confusing and harmful the moment that they cease to work.

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For related research and practice materials, see the following legal topics:

Contracts LawFormationTender & DeliveryContracts LawPerformanceGeneral OverviewContracts LawFormationExecutionContracts LawFormationGeneral OverviewContracts LawGeneral Overview

FOOTNOTES:

(n1)Footnote 1. This section now incorporates former § 4: ''Barter and Gift Distinguished from Contract.''

(n2)Footnote 2. Compare the following definitions. ''The most popular description of a contract that can be given is also the most exact one; namely, that it is a promise or set of promises which the law will enforce. The specific mark of a contract is the creation of a right, not to a thing, but to another man's conduct in the future.'' ''Every agreement and promise enforceable by law is a contract.'' Gustavus A. Wald's Pollock, Contracts (3d Ed.) pp. 1, 2.

A contract is ''an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.'' William R. Anson, Contracts (2d Am.Ed., Huffcut) p. 11.

''The act alone is the contract, the resulting contractual relation is quite a different thing.'' Holland, Jurisprudence (10th Ed.) p. 251. See also Jeremy Bentham's classification, Works, III, 191.

(n3)Footnote 3. The uncertainties of language (especially of legal terms) and the illusion that words have an ''objective'' meaning all their own, independent of any person who uses them to express his thoughts, are most obvious and most damaging in the field of ''interpretation'' of contracts. Far more dispute and litigation are concerned with ''interpretation'' than with any other subject of contract law; and the degree of uniformity in judicial results is probably the lowest. See Chs. 24-29.

(n4)Footnote 4. This section is cited in Baehr v. Penn-O-Tex Oil Corp., 258 Minn. 533, 104 N.W.2d 661 (1960) , definition of ''contract.''

This section is cited in Cederstrand v. Lutheran Brotherhood, 263 Minn. 520, 117 N.W.2d 213, 219 (1962) . The court quotes the Restatement definition of ''contract,'' and describes it as defining ''in a circular fashion.'' It says: ''This amounts to saying that a contract is a legally enforceable promise. But a promise is legally enforceable only if it is a contract. Thus nothing less than the whole body of applicable precedents suffices to define the term contract.'' It is certainly true that the definition gives not the slightest hint as to when a promise is enforceable; but it is not ''circular,'' it merely excludes unenforceable promises from the coverage of ''contract.''

(n5)Footnote 5. Definitions substantially like this are very commonly stated in judicial opinions.

See the following cases:

Ill. - People v. Dummer, 274 Ill. 637, 113 N.E. 934 (1916) .

Md. - Buffalo Pressed Steel Co. v. Kirwan, 138 Md. 60, 113 A. 628 (1921) .

N.C. - N. & W. Overall Co. v. Holmes, 186 N.C. 428, 119 S.E. 817 (1923) .

Ohio - Local Telephone Co. v. Cranberry Mut. Telephone Co., 102 Ohio St. 524, 133 N.E. 527 (1921) .

Or. - Feenaughty v. Beall, 91 Or. 654, 178 P. 600 (1919) .

(n6)Footnote 6. For an elegant demonstration that one kind of contractual liability is not dependent on promise, see Randy Barnett, Squaring Undisclosed Agency Law with Contract Theory, 75 Cal.L.Rev. 1969 (1987). For another illustration, see the final paragraph of § 2.31 of this treatise.

(n7)Footnote 7. Learned Hand, Foreword to Samuel Williston, Life and Law: An Autobiography at viii (1940).

(n8)Footnote 8. U.C.C. § 1-201(11).

(n9)Footnote 9. U.C.C. § 1-201(3).

(n10)Footnote 10. Ian R. Macneil, The New Social Contract 4 (1980). Macneil's definition in full is that contract means ''the relations among parties to the process of projecting exchange into the future.'' This definition does indicate the important role of contract as an instrument for planning future action. The point in the text is that contract also affects past actions; e.g., conveyances already made.

The definition in the U.C.C. is more inclusive. The term ''bargain,'' includes barters and other executed transactions. Such transactions would be outside the field of contract as defined by the Restatement or by Macneil's full definition.

(n11)Footnote 11. To recognize this role is not to deify it. The primary goal of contract law is to effectuate the parties' expectations. See § 1.1 above. In recognizing the role of the law in contract, this treatise does not participate in any political effort to undercut the primacy of the parties' voluntary undertakings. See Steven J. Burton & Eric G. Andersen, The World of a Contract, 75 Iowa L.Rev. 861 (1990).