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PART I: CONTRACTS IN GENERAL

CHAPTER II

NATURE AND CLASSIFICATION OF CONTRACTS

44. Definition and general features.Contracts are agreements which create, transfer or extinguish legal obligations. All true contracts are agreements, but all agreements are not contracts. If an agreement contains such elements as give rise to an obligation enforcible at law, it is then, a contract.

Thus, every true contract involves the following two ideas:

1. Agreement.
2. Legal obligation.

45. Agreement in general.To create an agreement there must be a meeting of the minds of two or more persons. In other words, there must be a distinct common intention. Such an intention does not exist where there is doubt or difference. There must be sufficient definiteness to enable a court to ascertain the terms. In doing so, however, the court will judge the parties by what they say and do.

EXAMPLES

8. A asks B if he will take $200 for a certain horse which he owns.

B replies, “Very possibly I will.” The doubt involved in B's answer negatives the idea of agreement. 9. A offers B $50 for a certain cow. B replies that he accepts the offer provided he be permitted to retain her another week for her milk. The difference between A's offer and B's conditional acceptance negatives the idea of agreement. In reality, B's conditional acceptance constitutes a rejection of A's offer and a new offer on B's part.

10. A, who owns several farms, offers to sell B one hundred acres of land for $10,000. B replies, “I accept your offer." This does not constitute a contract since the subject-matter is too indefinite.

11. A offers to sell B one hundred bushels of wheat at $1 per bushel, and B accepts A's offer. Since it is not essential to describe any particular one hundred bushels of wheat, this constitutes a contract.

12. A has two horses, Dan and Prince, which look very much alike. Dan is worth $200 and Prince $500. By mistake, A shows Prince to B, believing that he is showing him Dan, and offers him to B for $200. B accepts the offer. Since A is judged by what he says and does, his mistake does not excuse him and he is bound by B's acceptance of his offer.

46. Purposes of agreement.-Agreements which are enforcible at law serve three purposes. They create, transfer and extinguish rights. Those which transfer rights are called assignments. Those which extinguish rights are called releases or discharges. Some agreements, for example, a novation, serve all three purposes. enters into an agreement with B and C whereby C acquires all of A's rights and assumes all of his obligations growing out of the lease. This constitutes a novation. The object accomplished is of a three-fold nature. The agreement creates, transfers and extinguishes rights.

EXAMPLES

18. A, who has an account against B for $200, transfers it to C for a certain horse. This constitutes an assignment by A to C of A's right against B. A is called the assignor and C the assignee.

14. A, who owes B $50 for services rendered, offers B a certain cow in payment of the debt and B accepts A's offer. This constitutes a release or discharge of A's debt to B.

15. A, who holds a lease of B's house for a definite term,

47. Classification of contracts.Contracts are classified in various ways. Thus, we have executed and executory contracts; formal and informal contracts; valid, voidable and void contracts; express and implied contracts; simple contracts, contracts under seal and contracts of record.

48. Executed and executory contracts.—What is called an executed contract is one of which the terms have all been carried out. And since no rights or obligations are outstanding, no contract in reality exists. Property rights growing out of the contract have taken its place and the contract itself has been extinguished.

An executory contract is one whose terms have not all been performed. Such a contract may be bilateral or unilateral. A bilateral executory contract is one in which the obligation of each of the parties to the contract is still outstanding. A unilateral executory contract is one in which the obligation of one of the parties has been performed but not that of the other party.

49. Formal and informal contracts.Formal contracts are those whose validity depends upon their form, in other words, upon some peculiar solemnity which attaches to the mode of expression of the agreement. At common law they are of two kinds—contracts under seal and contracts of record.

Informal contracts are those which are not under seal or of record. They are also called simple or parol contracts. They may be oral or in writing.

50. Valid, voidable and void contracts.—A valid contract is one which is binding upon both parties to it. It is to be observed, however, that a valid contract may, nevertheless, be unenforcible by statute.

A voidable contract is one which is capable of being affirmed or rejected by one of the parties.

A void contract is one which is not binding upon either of the parties. It has no legal effect at all and is in reality no contract.

51. Express and implied contracts.An express contract is one which is stated in words by the parties. It may be oral or in writing.

An implied contract is one which is inferred or presumed from conduct or conditions. Such a contract may be implied in fact or in law.

52. Simple contracts, contracts under seal and contracts of record.—Simple contracts are those whose validity does not depend upon their form. They are frequently called parol contracts. They may be oral or in writing. Any contract, not under seal, nor a contract of record, is a simple contract.

Contracts under seal depend for their validity upon their form, and not upon the fact of consideration. They become effectual only upon delivery to the obligee or his authorized. agent. When delivered to a third party, to be turned over to the obligee upon the performance of some condition, the delivery is called an escrow. An unauthorized delivery by the third party to the obligee before the performance of the condition is not binding. Contracts under seal are frequently called specialties.

Contracts of record consist of obligations recorded in a court of record. They are subdivided into judgments for damages or costs and recognizances.

Judgments for damages or costs are either entered by consent of the obligor or rendered in invitum. In the latter case they are merely quasi-contractual, and therefore, in the true sense they are not contracts at all.

Recognizances are obligations entered into before a court of record, or duly authorized magistrate, to do or forbear from doing a certain thing under a penalty. They are quite common in criminal cases, but are not confined to these. The obligation may be to keep the peace, pay a debt, appear at court as a witness, etc.

53. Merger of contracts.—Since a contract under seal is of a higher order than a simple contract, the former merges or extinguishes the latter. For a like reason a contract of record merges or extinguishes a contract under seal or a simple contract.

EXAMPLES

16. A purchases a horse for $200 cash. This constitutes what is called an executed contract.

17. A and B mutually promise each other to intermarry three months later. This is an executory contract.

18. A, who is a minor, offers B $10 for a certain watch, and B accepts A's offer. This is a voidable contract as A may disaffirm it.

19. A offers to smuggle certain goods belonging to B, from Canada into this country in consideration that B pays him $50. B accepts A's offer. This is a void contract owing to its illegality.

20. A sends B goods under circumstances which reasonably show that A expects pay for them. B retains the goods. This creates an implied contract that B will pay A the market value of the goods.

21. A allows B to work for him under circumstances which may reasonably create a presumption that B is to receive pay for his services. This constitutes an implied contract. Per

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