Practical Application: Identifying Types of Contracts

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

In business and in personal life, several different types of contracts are commonly seen. Get the chance to practice identifying what kind of contract is being exhibited in several different scenarios.

Contracts

There are many types of contracts in both personal life and in the business world. From a personal standpoint, some contracts are used on a daily basis while others are used less often. From a legal perspective, identifying what type of contract is being dealt with is important as it lets both parties know what each is entitled to and what each party needs to do to comply with the contract. Most contracts are enforceable by law, so complying with such contracts becomes a legal matter.

Regardless of the type of contract that is used, all contracts must contain these six items:

  1. The offer specifically lists or details what is to be provided
  2. Acceptance by the person or party on the receiving end of the contract
  3. What kind of consideration, usually money for a service, is to be exchanged between the parties
  4. Both parties must have capacity, a sound mind, to agree to and carry out a contract
  5. Both parties must have the intent to follow through with the promise laid out in the contract
  6. Terms and conditions that are legally enforceable

Identifying Contracts

There are four different types of contracts that we can think about:

  1. Express contracts are those contracts where all the details and terms are stated either on paper or verbally
  2. Implied in-fact contracts are those that both parties agree to but don't come with any specific terms
  3. Implied in-law contracts are those contracts that happen when a service or product is provided to the receiving end without the receiving end asking for it
  4. Illusory promises aren't really contracts but are simply statements that can't be legally enforced because they are usually too vague or plain impossible to fulfill

The following are four scenarios. Practice identifying which type of contract is being used in each scenario.

Some questions that will help are these:

  • Does the contract include specific details and terms?
  • Are both parties in agreement?
  • Do both parties know what products and services are to be provided?
  • Does the contract sound legitimate or too-good-to-be-true?

Eating Out

Mary Lou and Robert are going out on a date. They have decided to go eat out at a fancy restaurant. After being seated at this fancy restaurant and looking over the menu, Robert orders for both Mary Lou and himself. He knows exactly what he wants and he has an idea what Mary Lou will like as well. After eating the meal, they receive a check. Robert looks at the check, nods his head in agreement, and then pays for their meal.

What kind of contract is happening here between Robert and the fancy restaurant?

Going through the questions, there are no details or terms included. Both parties are in agreement and both know what products and services will be provided. In this case, a meal. The contract sounds legitimate. This means the contract is an implied in-fact contract.

Renting an Apartment

A week later, Robert and Mary Lou are engaged. They are now looking to rent an apartment together. They visit several apartments before settling on one that they like. To rent this apartment, they go through an application process. Once approved, they then end up signing a binding leasing contract that spells out the specific terms of their lease and what they are allowed to do. After both parties sign this contract, Robert and Mary Lou then get the keys to their new place.

What kind of contract is this?

Going through the questions again, it includes specific details and terms. Both parties are in agreement and know exactly what is included. And the contract sounds legitimate. This contract, then, is an express contract.

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