What is a Contract? Flashcards
General Definition
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.
Common Law v. Article 2 Sale of Goods
Generally, the common law governs contracts. However, for contracts involving the sale of goods, Article 2 of the Uniform Commercial Code (“UCC”) applies.
Article 2 has adopted much of the common law of contracts, but when the common law and Article 2 differ, Article 2 prevails in a contract for the sale of goods.
UCC - “Goods” Defined
“Goods” are all things movable at the time they are identified as the goods to be sold under the contract. Thus, Article 2 applies to sales of most tangible things, but does not apply to the sale of real estate, services, or intangibles (e.g. a patent), or to construction contracts.
UCC - Merchants v. Nonmerchants
A number of the rules in Article 2 depend on whether the seller and/or buyer are merchants. Article 2 generally defines “merchant” as one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved.
For Article 2 provisions dealing with general business practices (e.g. Statute of Frauds, confirmatory memos, firm offers, modification), almost anyone in business can be deemed a merchant. But remember that some Article 2 provisions are narrower and require a person to be a merchant with respect to the goods of the kind involved in the subject transaction (e.g. the implied warranty of merchantability).
UCC - Good Faith and Fair Dealing
Every contract within the UCC imposes an obligation of good faith in its performance and enforcement.
“Good faith” is honesty in fact and the observance of reasonable commercial standards.
The common law also imposes a duty of good faith and fair dealing. A brach of this duty usually involves exercising discretion in a way that deprives the other party of the fruits of the contract.
Types of Contracts - As to Formation (3)
1) Express contract
2) Implied in Fact Contract
3) Quasi-Contract of Implied in Law Contract
Express Contract
Express contracts are formed by language, oral or written.
Implied in Fact Contract
Implied contracts are formed by manifestations of assent other than oral or written language, i.e. by conduct.
Quasi-Contract of Implied in Law Contract
Quasi-contracts are NOT CONTRACTS at all. They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant.
Types of Contracts - As to Acceptance (2)
1) Bilateral Contracts - Exchange of Mutual Promises
2) Unilateral Contracts - Acceptance by Performance
Modern View - Most Contracts are Bilateral: Under Article 2 and the Second Restatement, a traditional unilateral contract occurs in only two situations:
i) the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; AND
ii) where there is an offer to the public, such as a reward offer.
Bilateral Contract
The traditional bilateral contract is one consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.
Unilateral Contract
The traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.
Types of Contracts - As to Validity (3)
1) Void Contract
2) Voidable Contract
3) Unenforceable Contract
Void Contract
A void contract is one that is totally without any legal effect from the beginning (e.g., an agreement to commit a crime). It cannot be enforced by either party.
Voidable Contract
A voidable contract is one that one or both parties may elect to avoid (e.g. by raising a defense that makes it voidable, such as infancy or mental illness).
