Chapter 12 Nature and Classes of Contracts Contracting on the Internet Nature of Contracts Defining a Contract Contract a legally binding agreement Contracts arise out of agreements so a contract may be defined as an agreement creating an obligation By mutual agreement or assent the parties create enforceable duties or obligations Parties of a Contract The person who makes a promise is the promisor and the person to whom the promise is made is the promisee o If the promise is binding it imposes on the promisor a duty or obligation so the promisor may be called obligor The promisee who can claim the benefit of the obligation is called the obligee lessee Parties to a contract are said to stand in privity with each other and the relationship between them is termed privity of contract Parties to a housing contract are called landlord and tenant or lessor and o Contract between them is known as a lease Vendor and vendee for the parties to a sales contract Shipper and carrier for the parties to a transportation contract A party to a contract can be an individual partnership limited liability Insurer and insured for the parties to an insurance policy company corporation or government One or more persons may be on each side of a contract A contract binds only the parties to the contract It cannot impose a duty on a person who is not a party to it Ordinarily only a party to a contract has any rights against another party to the contract How a Contract Arises A contract is based on an agreement An agreement arises when one person the offeror makes an offer and the person to whom the offer is made the offeree accepts There must be both an offer and an acceptance Intent to Make a Binding Agreement Because a contract is based on the consent of the parties and is a legally binding agreement it follows that the parties must have an intent to enter into an agreement that is binding Sometimes there is merely a preliminary agreement but the parties never actually make a contract An agreement for future plans or intentions without any contractual obligation to carry out those plans or intentions is not a contract Classes of Contracts Formal Contracts enforced because their formal execution is considered sufficient to signify that the parties intend to be bound by their terms Components Contracts under seal signature or corporation s name is followed by a scroll the word seal or L S Contracts of record obligations that have been entered before a court of record Negotiable instruments Express Contracts terms of the agreement are in words either written or oral Implied Contracts terms of the agreement are not shown in words but by the acts and conduct of the parties A person renders services under circumstances indicating that payment for them is expected The other person knowing the circumstance accepts the benefit of those services Cannot arise when there is an existing express contract on the same subject Valid Contract agreement that is binding and enforceable Voidable Contract an agreement that is otherwise binding and enforceable but because of the circumstances surrounding its execution or the lack of capacity of one of the parties it may be rejected at the option of one of the parties Void Agreement An agreement that contemplates the performance of an act prohibited by law is usually incapable of enforcement hence it is void Quasi Contract when a person or enterprise receives a benefit from another even in the absence of a promise to pay for the benefit a court may impose an obligation to pay for the reasonable value of that benefit to avoid unjust enrichment