A contract is any promise or set of promises made by one party toanother for the breach of which the law provides a remedy . The promise or promises maybe express (either written or oral) or may be implied from circumstances.
Typically, the remedy for breach of contract is an award ofmoney damages intended to restore the injured party to the economic position that heor she expected from performance of the promise or promises (known as an " expectation measure " ofdamages).
Occasionally a court will order a party to perform his or her promise (an order of " specific performance " or " quantummeruit "), but this remedy is unusual. In the civil law , contracts areconsidered to be part of the general law of obligations .
Scope of common law contract law
Basic common law contract law addresses four sets of issues:
Escape from contract: A party may in some cases escape obligations established by a contract for one of thefollowing reasons:
Many contract disputes involve a disagreement between the parties about what the contract requires. Hence, many rules ofcontract law pertain to interpretation of terms of a contract that are vague or ambiguous.
Validity of contracts
For a contract to be valid , it must meet thefollowing criteria:
Need for a writing?
Contrary to common wisdom, an informal exchange of promises can still be binding and legally as valid as a written contract. Aspoken contract is often called an " oral contract ", not a "verbalcontract". A verbal contract is simply a contract that uses words. All oral contracts and written contracts are verbal contracts.Contracts that are created without the use of words are called "non-verbal, non-oral contracts".
Courts in the United States have generally ruled that if the parties have a meeting of the minds and act as though there was a formal, written and signedcontract then a contract exists. However, most jurisdictions require a signed writing for certain kinds of contracts (like realestate transactions); the legislation setting out such requirements are typically entitled the Statute of Frauds . The point of the Statute of Frauds is to prevent false allegations of the existence of contracts that were never made, byrequiring formal (i.e. written) evidence of the contract.
Furthermore, the existence of a written contract does not necessarily ensure its enforceability or validity. A contract can bedeemed unenforceable if it requires a party to undertake an illegal act, if it was signed under duress or while intoxicated, if the disparity in knowledge between the parties is extreme and the weaker party wasgiven onerous terms, etc.
Void, voidable and unenforceable contracts
There are three classifications of contracts that are not binding. A contract is void if it is based on an illegalpurpose or contrary to public policy. It will not be recognized by court or enforceable by either party. A contract isvoidable if one of the parties has the option to terminate the contract. Contracts with minors are examples of voidablecontracts. Finally, a contract is unenforceable if it violates the Statuteof frauds . An example of the above is an oral contract for the sale of a motorcycle for $5,000 (any contract for the sale ofgoods over $500 must be in writing to be enforceable).
Bilateral v. unilateral contracts
Contracts may be bilateral or unilateral. The more common of the two, a bilateral contract, is an agreement in which each ofthe parties to the contract makes a promise or promises to the other party. For example, in a contract for the sale of a home,the buyer promises to pay the seller £200,000 in exchange for the seller's promise to deliver title to the property. In aunilateral contract only one party to the contract makes a promise. The most common type of unilateral contract is an insurancecontract. The insurance company promises to pay the insured a stated amount of money on the happening of an event if the insuredpays premiums; note that the insured does not make any promise to pay the premiums.
Express contracts v. implied contracts
A contract can be either an express contract or an implied contract. An express contract is one in which the terms areexpressed verbally, either orally or in writing. An implied contract is one in which some of the terms are not expressed inwords.
Implied in fact or implied in law
An implied contract can either be implied in fact or implied in law . A contract which is implied in fact is one in which the circumstancesimply that parties have reached an agreement even though they have not done so expressly. For example, by going to a doctor for aphysical, a patient agrees that he will pay a fair price for the service. If he refuses to pay after being examined, he hasbreached a contract implied in fact.
A contract which is implied in law is also called a quasi-contract ,because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would beunjustly enriched were he or she not required to compensate the other. For example, an unconscious patient treated by a doctor atthe scene of an accident has not agreed (either expressly or by implication) to pay the doctor for emergency services, but thepatient would be unjustly enriched by the doctor's services were the patient not required to compensate the doctor.
Statutory law applicable to contracts
The rules by which many contracts are governed are provided in specialized statutes that deal with particular subjects. Mostcountries, for example, have statutes which deal directly with sale ofgoods , lease transactions and trade practices . There are alsomany acts around the world which deal with specific types of transactions and businesses. For example, the states of California and New York in the U.S. have statutes that govern the provision of services to customers by healthstudios, and the UK has the Sale of Goods Act 1979 which governs the contracts between sellers and buyers.
Contract theory is the body of legal theory that addressesnormative and conceptual questions in contract law. One of the most important questions asked in contract theory is why contractsare enforced. One prominent answer to this question focuses on the economic benefits of enforcing bargains. Another approach,associated with Charles Fried, maintains that the purpose of contract law is to enforce promises. This theory is developed inFried's book, Contract as Promise. Other approaches to contact theory are found in the writings of legal realists and critical legal studies theorists.
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