Contract types of contract

What is a contract?

A contract is a legally enforceable promise or set of promises. However, not all promises are contracts. If Bill promises to take Mary to the movies on Saturday night but takes Judy instead, can Mary successfully sue Bill for breaking his promise? No. If Bill buys a car from Friendly Motors and promises to pay for it in monthly instalments, can Friendly Motors force Bill to honour his promise if he stops making payments? Yes. What is the difference between theses two promises?

Over the years the common law courts developed a number of requirements that a promise had to meet before it would be considered a contract.

These are:

1. An agreement (an offer and an acceptance of the offer);

2. Voluntarily entered into;

3. By parties having capacity to contract;

4. Supported by consideration (with some exceptions);

5. To do a legal act or acts.

In addition to these elements, the courts required written evidence of some kinds of contracts.

Why have contracts?

Contracts are probably a necessary device in any kind of market economy where goods and services are exchanged by people acting in their own interest. A contract is a legally enforceable promise or set of promises. However, not all promises are contracts. People might not enter into agreements that call for some future performance unless they know some means exist (the law) to force other people to honour their promises. For example, a small business might be afraid to supply its goods to a large corporation in exchange for the corporation’s promise to pay for them next month, unless the business knows it could have outside help to force the corporation to pay. Similarly, a weak person might not be willing to pay a strong person today for outside help available to enforce the return of the money if the goods are not delivered, or if the delivered are not what was agreed to.

It is also true that it would probably be impossible to have an industrialized, market economy without contracts. A manufacturer would be unable to do the kind of planning necessary to run a business if it could not rely on agreements with suppliers to furnish the raw materials needed to make its products. Similarly, a manufacturer might not be willing to commit itself to buy raw materials or hire employees if it could not rely on buyers’ promises to buy its products.

It is not surprising, then, that the contract was accepted as the basis for business transactions at a very early point in history. Egyptians and Mesopotamians recognized and enforced contracts thousands of years before Christ. By 1603 the common law courts of England recognized the enforceability of simple contracts.

Types of contracts

Several terms are used to describe kinds of contracts.

Unilateral contract	an act exchanged for a promise
Bilateral contract	a promise exchanged for a promise
Executory contract	a contract that has not been fully performed
Executed contract	a contract that has been fully performed
Express contract	terms are stated orally or in writing
Implied contract	terms are indicated by facts and circumstances
Implied-in-Law Quasi-Contract	contract-like duties imposed by the court to prevent unjust enrichment

UNILATERAL AND BILATERAL CONTRACTS

Contracts are called either unilateral or bilateral depending on whether one or both of the parties made a promise. In a unilateral contract, only one of the parties makes a promise. The other party performs an act in exchange for that promise. For example, Mary runs an ad in the paper offering a $5 reward for the return of her lost dog, Sparky. Mary has made a promise to pay the person who performs the act of returning Sparky.

In a bilateral contract, both parties make a promise. For example, Sue Smith the owner of Hi-Fi Heaven, orders 100 stereo receivers from Steve Jones, a salesman for Slick Sound Manufacturing Company. Sue has made a promise to pay for the receivers in exchange for Slick Sound’s promise to deliver them.