NATURE OF A CONTRACT
Sec. 1. Introduction. The law of contracts forms the oldest
branch of the law relating to business or to commercial transac-
tions. In one form or another it has existed from the beginning
of organized society. Just as the safety of person and of property
depends upon the rules of criminal law, so the security and stability
of the business world are dependent upon the law of contracts.
Although not recognized as such, many contracts are formed daily
by the average person. The acceptance of an order for groceries,
the dropping of money in the coin box on a bus, the purchase of a
ticket to a theatre, or the formal signing of an agreement to pur-
chase a residence constitutes the formation of a valid and binding
Furthermore, the law of contracts furnishes the foundation for
the other branches of commercial law firms. The laws of agency, surety-
ship, sales, negotiable instruments, corporations, and partnerships
are all superimposed upon the general principles of contract law.
In a sense they are only specialized fields of contracts. They relate
to particular types of agreements about which have grown up spe-
cial bodies of contract law necessitated by the peculiar conditions
surrounding them. For these reasons a study of the general rules
of contract law naturally precedes the invasion of any other field.
Sec. 2. Classification. Contracts may be classified as follows:
1. Formal and informal.
2. Executed and executory.
3. Express and implied.
Sec. 3. Formal and informal contracts. History indicates that
during ancient times promises were not enforceable unless they
were accompanied by some prescribed formality. The early Eng-
lish law enforced only promises that were written, signed, and
'sealed. The seal consisted of a waxen impression which was at-
tached to the writing immediately following the signature. It is
only during the last few centuries that the doctrine of consideration
has been developed to such an extent that strictly informal agree-
ments are recognized. Today, not even a writing is required for
the formation of a binding contract except as state statutes, usually
designated as the Statute of Frauds, require certain agreements to
be evidenced by writing. It may be written or oral at the pleasure
of the parties, although certain advantages are attached to the
written agreement. By the law of most states, deeds and recog-
nizances must still comply with certain formalities. The signature
is followed by the signer's seal, which in many instances has been
reduced to a mere "L. S.," denoting "place for seal."
Sec. 4. Executed and executory contracts. An executed con-
tract is one which has been fully arried out
parties".' ^An executory contract is one which is yet to b
An agreement may be executed on the part of 6neT party and execu-
tory on the part of the other. Thus, a contract for the purchase of
a suit of clothes on credit, followed by the delivery of the suit, is
executed on the part of the dealer and executory on the part of the
Sec. . 5. Express and implied contracts. All the terms of a con-
tract may be definitely expressed in the verbal or the written agree-
ment between the parties. Such an agreement results in an express
contract. An implied contract^n^fact, isjgne which is implied
largely from thejxm^^ the" parties. The entire
agreement may be a matter of implication ; or some understanding
may exist without any definite agreement as to certain major terms.
In such a case the terms are implied from the surrounding circum-
The term "implied contracts" is also used to denote situations
in which the courts imply a contract in law firms, regardless of the in-
tention of the parties. If some benefit has been received by one
party at the expense of another, the court often compels the recipi-
ent to pay a reasonable amount for the benefit received. This is
true, although the parties had no intention of entering into a con-
tract. These obligations implied by law are properly designated
"quasi contracts." Technically, implied contracts are only those
which are enforced because the parties by their conduct have ex-
hibited an intention to contract.
Sec. 6. Elements of a contract. A contract has been defined
as "an agreement enforceable by law." A more complete definition
follows: A contract is an agreement between two or more compe-
tent persons, having for its purpose a legal advice, wherein both
persons agree to act or to refrain from acting in a certain manner.
This definition breaks up logically into four component parts:
1. Agreement offer and acceptance.
2. Competent parties.
3. Legal object.
4. Mutuality consideration.
NATURE OF A CONTRACT 23
These elements are all essential in an enforceable agreement.
They will be considered in detail in the chapters which follow, al-
though not in the particular order in which they have been men-
Review Questions and Problems
1. Give a definition of a contract.
2. Are contracts of frequent or of infrequent occurrence?
3. Name the essential elements of a contract.
4. What is the difference between a formal and an informal contract?
5. What is the true meaning of an implied contract?
6. Must a contract be in writing?
7. When is a contract executory?