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Contract Law Terms: Definitions & Contract Types

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  • 0:05 What Is a Contract?
  • 1:36 Express Contract
  • 3:10 Implied In-Fact Contract
  • 3:57 Implied In-Law Contract
  • 5:54 Illusory Promise
  • 6:33 Lesson Summary
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

A contract is an agreement between two or more parties to perform a service, provide a product or commit to an act and is enforceable by law. There are several types of contracts, and each have specific terms and conditions.

What Is a Contract?

When a salesperson asks you to sign on the dotted line, it is important to understand the contents of the agreement you are signing. After all, the agreement you are entering into is a contract!

A contract is a written or expressed agreement between two parties to provide a product or service. There are essentially six elements of a contract that make it a legal and binding document.

In order for a contract to be enforceable, it must contain:

  1. An offer that specifically details exactly what will be provided
  2. Acceptance, which is the agreement by the other party to the offer presented
  3. Consideration, money or something of interest being exchanged between the parties
  4. Capacity of the parties in terms of age and mental ability
  5. The intent of both parties to carry out their promise
  6. Legally enforceable terms and conditions, also called object of the contract

In other words, a contract is enforceable when both parties agree to something, back the promise up with money or something of value, both are in sound mind and intend to carry out their promise and what they promise to do is within the law.

Most commonly, a contract is written and signed by the parties. However, there are several other types of contracts that are considered enforceable. There are even some that are not considered enforceable and serve only as a way for a court to determine the obligation on the part of either party.

Express Contract

You'll likely be a party to contracts in your everyday routine. Everything from eating at a restaurant to buying a home includes some form of a contract. The following are some of the most common contracts that are used.

An express contract is the most common contract type. In this type of contract, all elements are specifically stated. This can be written or done orally. Either way, offer, acceptance and consideration must bind the parties together legally. And both parties must clearly understand the terms and conditions each is agreeing to.

When Josie Aurora decided to rent an apartment from Landlord Whistler, she signed a lease. In the lease, it stated the amount of the rent, the length of the lease and what amenities are included in the rent. Josie gave Whistler a down payment equal to one month's rent to secure the apartment, signed the agreement and Whistler handed over the keys and rights to occupy the place for a period of time written into the lease agreement. Josie and Whistler entered into an expressed contract for the rental of an apartment.

An oral contract works the same way. In an oral contract, like negotiating the price of a new car, the parties agree on a set price, a monthly payment schedule if applicable and any warranties or guaranties included in the offer. Once acceptance is made and consideration is exchanged, the contract for the vehicle is binding and enforceable. As long as both parties uphold their promise, the car cannot be returned at a later date, nor can the salesman request the car back from the new owner.

Implied In-Fact Contract

Not every contract is as transparent as an expressed contract. An implied in-fact contract binds parties together through a mutual agreement and intent, but there are no expressed terms of the agreement. The agreement holds mutual intention based on facts and circumstances and a reasonable assumption from the circumstances and relations between the parties. For an implied in-fact contract to be enforceable, there are a few elements that must be present:

  1. An unambiguous offer and acceptance
  2. Mutuality of both parties to be bound to the contract
  3. Consideration

The elements can be determined by the behaviors of the parties. For example, when a guest orders a steak at a restaurant, it is assumed that the steak will be cooked and served to the guest's liking and the guest has every intention of paying for the meal.

Implied In-Law Contract

An implied in-law contract, also known as a quasi-contract, works differently. In this type of contract, the elements are not specifically written or expressed. In fact, this type of contract is used as a remedy in a situation when one party to the quasi-agreement received unjust enrichment resulting from not paying for a product or service rendered. This sounds confusing but it really boils down to this - if a product or service is rendered to a party without paying, it becomes inequitable for the rendering party.

An example will help to explain how a quasi-contract works. Sandi Brown took her car into the shop to have her tires rotated. As the mechanic performed the agreed upon service, he noticed that there were a few questionable lug nuts. If he leaves the existing lug nuts, it could cause a tire to fall off while Sandi is driving. The mechanic changes the cracked lug nuts for a few new ones and completes the job. When Sandi returns, she learns that the bill is higher than she originally agreed upon because of the extra charge for the parts. While Sandi never agreed to the additional repair, it was necessary and needed to be done at the time of the repair to prevent a driving disaster.

If Sandi does not pay for the lug nuts, it is unjust enrichment under the law. She is unfairly receiving a benefit from the repair shop that she did not pay for. This is not equitable for the repair shop because they paid for the lug nuts in their inventory.

There are certain elements that must be present:

  • One party was enriched or received a product or service for which they did not pay
  • One party was impoverished because they provided a product or service and received no compensation
  • A connection between the two parties exists
  • There was no justification for the enrichment
  • No remedy was provided

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