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76 Summary of Contract Law

Chapter 5: Summary of Contract Law

By John W. Tulac

Main Ideas

Studies have shown that the two most important

components for an economy to develop are education to create

knowledge and a rule of law that protects private contract and

private property rights. Property rights, real and personal,

tangible and intangible, contribute to the development of wealth

by the ability to barter or exchange them. Money is a medium

for exchange. The basis by which people are able to get what

they want or need is the contract.

A contract creates a binding obligation or commitment

between two or more parties for which the law recognizes a duty

to perform and provides a remedy in the event of

nonperformance of the obligation or commitment.

Contract Elements

A contract exists when the following four elements are

present:

1. Agreement. Agreement, which consists of an offer and

an acceptance, forms or makes the contract.

2. Consideration. Consideration is the subject matter of

the contract.

3. Contractual Capacity. The parties making the

contract must be legally competent to do so.

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4. Legality. The subject matter or consideration must be

lawful.

In addition, the courts look at two other aspects to

determine whether a contract can be enforced. These are

affirmative defenses to the enforceability of the contract. They

are:

1. Form. Some contracts must be in writing to be

enforceable

2. Genuineness of assent. The agreement must be

volitional or voluntary, that is entered into by one’s own

free will that is not wrongfully induced or coerced into

agreement.

Types and Classification of Contracts

Contracts are classified in a variety of ways, including:

Bilateral or Unilateral

A bilateral contract is formed by the mutual exchange of

promises. Joe promises to mow Jim’s lawn and Jim promises to

pay Joe $25.00 for mowing the lawn. A unilateral contract is

formed by the exchange of a promise and the actual

performance by one of the parties. Jim promises to pay Joe

$25.00 if Joe mows Jim’s lawn. By then mowing the lawn Joe

makes the contract and performs it at the same time. Obviously,

unilateral contracts can present some risk to the

accepting/performing party.

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78 Summary of Contract Law

Express or Implied

An express contract is one that is written or oral. An

implied-in-fact contract arises out of the conduct of the parties.

An implied-in-law contract, also called quasi-contract, is not an

actual contract at all but rather is a remedy by which a court will

enforce some promises upon which the other party is found to

have been reasonably entitled to rely. It is smart contracting

practice to make express contracts, preferably in writing, even

when the law does not require a writing.

Voidable and Void Contracts

This distinction is the bane of business law students. A

voidable contract is a true contract but one or both parties has

the right to withdraw from the contract for various legal reasons

such as fraud, mutual mistake of fact, undue influence or

wrongful coercion. A void contract is not a true contract at all,

but rather is a nullity. An illegal contract lacks the element of

legal subject matter and therefore is void. A contract to

distribute cocaine is a void contract.

Executory and Executed Contracts

An executory contract has not yet been performed or fully

performed. An executed contract has been performed. As is so

typical in the English language an executed contract also means

a contract that is signed by the parties. Written contracts must

be signed, at least by the party to be charged with performance,

but obviously good contracting practice requires all parties to

sign.

Contracts are subject to interpretation. A contract will be

given the plain meaning of its language. Ordinary words are

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The Role of the Design Professional in Society 79

given their ordinary meaning. Specialized words are given their

specialized meaning within the relevant context. A contract that

is intended to be complete on its face and so states will not

require external or parole explanation as to its terms. A contract

for the sale of chicken can be fulfilled by any bird that is a

chicken, young or old, small or large, roaster or fryer or stew

bird. For a particular kind of chicken to be delivered under

contract, the parties would need to use an adjective to further

describe the subject matter.

There are many other rules for interpretation of contracts

terms. Terms are interpreted to preserve the existence of

contract, to give it a lawful purpose over an unlawful one, to give

more weight to customized or negotiated terms over preprinted

or boilerplate terms, to resolve ambiguous terms if possible so

that the contract can be enforced, to make use of trade or

market customs and practices to explain terms etc.

Offer and Acceptance

Offer

A contract is made or formed by an offer and an

acceptance.

An offer is a promise to do or refrain from doing some

specified thing in the future. The promise can be made

expressly in words, oral or written, or implied by conduct.

An offer consists of three parts:

1) The offeror must have serious objective intent to bind,

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