Contract Defined and Explained

A contract is an agreement between two or more competent parties in which an offer is made and accepted and each party benefits. The agreement can be formal, informal, written, oral or just plain understood. Some contracts are required to be in writing in order to be enforced. Another definition of a contract is an agreement between two or more parties which creates obligations to do or not do the specific things that are the subject of that agreement. Examples of contracts are leases, promissory notes, and rental agreements.

This term, in its more extensive sense, includes every description of an agreement, or obligation, whereby one party becomes bound to another to do or omit a certain act or pay a sum of money. A contract is an act which contains a perfect obligation. In its more confined sense, it is an agreement between two or more persons, concerning something to be done, whereby both parties are bound to each other or one is bound to the other. This type of agreement must contain sufficient consideration to do or not to do a particular thing. A contract has also been defined to be a compact between two or more persons.

Types of Contracts

Contracts are divided into two categories:

  • Express.
  • Implied.

Express Contracts

An express contract is one where the terms of the agreement are openly uttered and avowed at the time of making, as to pay a stated price for certain goods. Express contracts are further split into three categories:

  • By parol, or in writing, as contradistinguished from specialties.
  • By specialty or under seal.
  • Of record.

A parol contract is defined to be a bargain or voluntary agreement made, either orally or in writing not under seal, upon a good consideration between two or more persons capable of contracting, to do a lawful act or to omit to do something, the performance whereof is not enjoined by law.

To constitute a sufficient parol agreement, there must be:

  • The reciprocal or mutual assent of two or more persons competent to contract. Every agreement ought to be so certain and complete that each party may have an action upon it, and the agreement would be incomplete if either party withheld his assent to any of its terms. The agreement must be obligatory on both parties or it binds neither. To this rule, some exceptions exist, as in the case of an infant's contract. An infant may always sue, though an infant cannot be sued on their contract.
  • A good and valid consideration, motive or inducement to make the promise upon which a party is charged. Consideration is the very essence of a contract under seal and must exist, although the contract is reduced to writing.
  • A thing to be done, which is not forbidden, or a thing to be omitted, the performance of which is not enjoined by law. A fraudulent or immoral contract, or one contrary to public policy, is void.

Specialties express contracts are those which are made under seal, as deeds, bonds, and the like. They are not merely written, but delivered over by the party bound. The solemnity and deliberation with which, on account of the ceremonies to be observed, a deed or bond is presumed to be entered into attaches to it an importance and character which do not belong to a simple contract. In the case of a specialties contract, no consideration is necessary to give it validity, even in a court of equity. When a contract by specialty has been changed by a parol agreement, the whole of it becomes a parol contract.

Express contracts of record are the highest form of express contracts and include judgments, recognizances of bail, and in England, statutes merchant and staple, and other securities of the same nature. They are entered into with the intervention of some public authority.

Implied Contracts

Implied contracts are such as reason and justice dictates, and those which the law presumes every man undertakes to perform. For example, if a man employs another to do any business for him or perform any work, the law implies that the former contracted or undertook to pay the latter as much as his labor is worth. If one takes up goods from a tradesman without any agreement of price, the law concludes that they contract to pay the value of the goods.

Contracts considered in relation to their substance are either commutative or independent and principal or accessory.

Commutative contracts are those in which what is done, given, or promised by one party is considered as equivalent to, or in consideration of what is done, given or promised by the other.

Independent contracts are those in which the mutual acts or promises have no relation to each other, either as equivalents or as considerations.

A principal contract is one entered into by both parties, on their accounts or in the several qualities they assume.

An accessory contract is made for assuring the performance of a prior contract, either by the same parties or by others. Examples include suretyship, mortgage, and pledges.

Motivation for Entering into a Contract

In relation to the motive for entering into a contract, this action is either gratuitous or onerous. To be gratuitous, the object of a contract must be to benefit the person with whom it is made without any profit or advantage received or promised as a consideration for it. It is not, however, the less gratuitous if it proceeds either from gratitude for a benefit before received or from the hope of receiving one hereafter. However, such benefits may be of a pecuniary nature. Anything given or promised as a consideration for the engagement or gift, or any service, interest, or condition imposed on what is given or promised, although unequal to it in value, makes a contract onerous in its nature.

Other Types of Contracts

In relation to their effects, contracts are either certain or hazardous. A contract is certain when the thing to be done is supposed to depend on the will of the party or when, in the usual course of events, it must happen in the manner stipulated. It is hazardous when the performance of that which is one of its objects depends on an uncertain event.

Contracts can further be split into additional categories:

  • Reciprocal or unilateral.
  • Consensual or formed by the mere consent of the parties such as sale, hiring, and mandate.
  • Real contracts, or those that require something more than mere consent, such as the loan of money, deposit, or pledge, which from their nature require a delivery of the item.
  • Contracts of mutual interest, which are entered into for the reciprocal interest and utility of each of the parties, such as sales exchange and partnership.
  • Contracts of beneficence which are those by which only one of the contracting parties is benefited, as loans, deposit and mandate.
  • Mixed contracts, which are those by which one of the parties confers a benefit on the other, receiving something of inferior value in return, such as a donation subject to a charge.
  • Principal and accessory.
  • Contracts which are subjected by the civil law to certain rules and forms
  • Contracts regulated by mere natural justice.