Introductory vocabulary and concepts

     When you start law school you might not yet know the meaing of "tort," but you certainly understand the general idea of "contract."  You have been a party to many contracts already, purchasing groceries, books, clothes, and movie tickets, leasing an apartment, buying a cell phone plan, insuring your car, taking the LSAT, obtaining a student loan, or paying tuition for a legal education.  The vocabulary and concepts that these materials introduce will add to but should not obscure your real life experience with and common sense understanding of contract. 

     It should take you but a moment's reflection on your own experience to realize that a contract is a voluntary undertaking between or among people (and organizations) that creates a relationship in which one or more of the parties to the contract promise to do something.  As such, most contracts are fundamental tools for the creation and exchange of wealth in an economic system of regulated capitalism.    
  
     To understand the technical legal meaning of "contract", it is useful to start with its basic building block, the promise. R.2d Contracts 2 defines promise as "a manifestation of intent to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made."  Sometimes, especially in written contracts, parties use the biblical "covenant," a synonym for promise.  The person making a promise is a "promisor" and the person to whom the promise is addressed is a "promisee."  If both parties to a contract make a promise, each is a promisor with respect to his or her promise and each is a promisee with respect to the promise made by the other party.   When performance of a promise will benefit someone other than the promisee (e.g. an insurance company promises Husband that it will pay a specified sum of money to Wife if Husband dies), the person to receive the benefit is a "beneficiary."  Under contract law, some promises create duties and the failure of the promisor to perform such duties will have consequences that contract law prescribes. "Obligation" is a synonym for "duty" and hence you will often see or hear "obligor" used to identify a promisor whose promise creates an obligation under contract law and "obligee" to identify the promisee to whom such an obligation is owed. 

     Contract law enforces some promises but not others.  For example, the mobster's promise of money to a hit man, although a "contract" in the language of literature and film, is for obvious reasons not an enforceable promise.   To reflect the fact that courts enforce some promises but not others, R.2d Contracts 1 defines contract in a very narrow and somewhat tautological manner:  "A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty."  But most legal writers (judges and lawyers, and many law professors), use the word contract in a somewhat broader sense to refer to the total legal relationship established when one party (i.e. an individual or an entity such as a corporation, partnership, governmental unit, trust, or estate) makes an enforceable promise to another party.  Even Comment b to R.2d Contracts 1 acknowledges this broader usage:   "Thus the word 'contract' is commonly and quite properly also used to refer to the resulting legal obligation, or to the entire resulting complex of legal relations."  These materials use "contract" in that broader sense. 

     Many people, including sophisticated business executives, use the words "agreement" or "deal" to describe a contractual relationship.  This is perfectly acceptable usage as long as one remembers that "agreement" and "deal" are not always synonymous with "contract."  People also use the words "agreement" or "deal" to refer to communication that does not describe a contractual relationship.  For example, you and I may agree that the movie Gone With the Wind was one of the five best movies ever made, or that 2 + 2 = 4, but our agreements here are not contracts.  And just as the deal between mobster and hit man is unenforceable, so are some other deals with which you are familiar: "Don't hit your sister and I'll buy you some ice cream;" "Practice hard and you get to play."  Conversely, courts will enforce some promises that aren't made as part of a deal.  A court will enforce a pledge of a gift to a charitable organization, for example, if the organization has justifiably relied on the pledge by committing the expected funds even though the charity did not promise or give anything in return (other than "thank you"), i.e. even though there was no deal.  In summary, some but not all agreements and deals are contracts (i.e. they include promises that the law will enforce) and some contracts are not the result of deals or agreements. 

      When analyzing transactions governed by the Uniform Commercial Code, including transactions in goods governed by Article 2 of the Commercial Code, one needs to work with other definitions of "contract" and "agreement."  See U.C.C. 1-201(11) ("contract") and U.C.C. 1-201(3) ("agreement").  As you read and compare those two definitions, notice the important distinction drawn between the meaning of the two words.  Consider the following illustration of that distinction.  A buyer signs a document obligating herself to purchase a pick-up truck from an automobile dealer.  The dealer signs the same document, obligating itself to sell the pick-up truck to the buyer.  In a conversation prior to the signing of the document (also referred to as "execution" of the document), the dealer's sales representative, in response to a question from the buyer, tells the buyer that the pick-up truck will tow a five-ton trailer or other load.  The "agreement" of the buyer and seller is "found in their language" (U.C.C. 1-201(3)), language that is expressed both in the written document that they have signed ("executed") and in the conversation about the load that the pick-up truck will pull.  But their "contract" may in some respects be narrower and in some respects be broader than their agreement.  Suppose the buyer discovers soon after taking delivery of the truck that it can only pull a two-ton load.  While she likes and wants to keep the truck, she feels cheated and wants some compensation.  One rule of contract law that we study, the parol evidence rule, may prevent the buyer from claiming that the sales representative told her about the towing capacity of the truck.  If her claim cannot be heard by virtue of application of this rule, her contract with the dealer does not include that part of her agreement with the dealer (here the contract is narrower than the agreement).  But if a court hears and believes her claim about the oral promise, she will be entitled to monetary compensation equal to the difference in value between what the truck is worth and what it would have been worth were it able to pull a five-ton load.   This remedy, supplied by applicable contract doctrine, is part of her contract even though not expressed in either the oral or the written language of their agreement (here the contract is broader than the agreement). 

     Under common law, as well as under the Uniform Commercial Code, an agreement may be found in language (i.e. verbal expression), non-verbal behavior, or by implication from other circumstances.  If the agreement is found in language, it is an express agreement and any resulting contract will be referred to as an express contract even though some components of the contract (such as the remedy for the disappointed truck buyer) may not have been expressed.  As suggested by that earlier example, the expression may be oral, written, or both.  An agreement predominantly or exclusively implied from non-verbal behavior or other circumstances is an implied agreement and any resulting contract will be referred to as a "contract implied-in-fact" or simply an "implied contract."  We consider the concept of "contract implied-in-fact" in Marvin v. Marvin (a dispute between actor Lee Marvin, well known for his role in The Dirty Dozen, and his estranged companion).   Note that there is also a "contract implied-in-law." As we see elsewhere, a "contract implied-in-law" (sometimes also referred to as an "implied contract" or "quasi-contract") is not really a contract at all and should not be confused with a "contract implied-in-fact."       

     Contracts are either "bilateral" or "unilateral."  R.2d Contracts does not use those phrases but you should know their meaning because many judges and lawyers continue to use them.  In a "bilateral contract," both parties make at least one promise in exchange for the promise made by the other.  Often one or both of the parties make several promises as part of the same contract.   Thus, in a bilateral contract, each party is both a promisor (with respect to the promises she makes) and a promisee (with respect to the promises made by the other).  The contract to purchase the pick-up truck, described above, is a bilateral contract:  the buyer promised the seller that she would pay a stated amount in exchange for delivery of the truck to her and the seller promised that it would deliver the truck to her in exchange for payment of the stated amount.  In a "unilateral contract," only one party makes a promise or promises, in exchange for an act or a forbearance from acting, not in exchange for a promise to act or forbear.  In such a contract, there is only one promisor and one promisee. An automobile insurance policy is a typical example of a unilateral contract.   The insurance company promises to pay insurance benefits in the event of damage or injury resulting from an automobile accident in exchange for payment of premiums by the insured.  The insured does not make a promise to pay the premiums, and the only consequence for failure of the insured to pay the premiums is that the insurance company need not pay insurance benefits. 

     As indicated above, courts also enforce some promises that are not made as part of a bargain.  The pledge to a charity is one example.  These promises are contracts under the R.2d Contracts definition of contract but we do not refer to them as either bilateral or unilateral contracts because the promises are not given in exchange for either a return promise or for an act or forbearance. Notice that the U.C.C. definition of contract (U.C.C. 1-201(11)) does not encompass these types of promises (it only encompasses promises arising in the context of a bargain), but this only suggests that the drafters of the Commercial Code were not interested in drafting statutory provisions governing these kinds of promises. UC.C. 1-103 nonetheless recognizes common law enforcement of promises that are not governed by the Commercial Code.  We explore these types of promises in Commentary.Consideration and estoppel.

     Contracts are comprised of terms.  Notice the Commercial Code definition (U.C.C. 1-201(42)) of "term:" "that portion of an agreement which relates to a particular matter (emphasis added)."  Under this definition, the oral statement by the salesperson concerning the towing capacity of the pick-up truck would be a term even though, because of the parol evidence rule, it might not be part of the contract.  Under this definition of term, the remedy available to the disappointed buyer would not be a term (because it was neither expressed in their language nor implied from the circumstances), but it would be part of the contract.  This definition of "term" is somewhat more narrow than suggested by its common usage by legal writers, especially given recent discourse about "default terms." Accordingly, these materials generally use the word "term" to refer to that portion of a contract (not just that part of an agreement) that relates to a particular matter (e.g. the price of the pick-up truck, the delivery date, or the remedy for our disappointed truck buyer).  Terms, like agreements, may be expressed in language, oral or written, or may be implied from the circumstances.  We consider implied terms in Wood v. Lucy, Lady Duff-Gordon (a classic case involving a famous designer who survived the sinking of the Titanic) and in Pugh v. See's Candies (in which a well known candy manufacturer is not so sweet to one of its executives)   Terms may also be supplied by rules of contract law (such as the remedy for our disappointed truck buyer).  Terms supplied by rules of contract law are now generally referred to in legal scholarship (although not as much in court opinions) as "default terms." 

    These materials, like most commercial outlines of the subject of contracts and many law school contract casebooks, begin exploration of contract law with the subject of contract formation (mutual assent and consideration or consideration substitutes).  It then considers various grounds upon which one of the parties may seek to avoid some or all of the obligations of a contract (lack of capacity, absence of a writing, mistake, misrepresentation, duress, undue influence, and public policy).  Then, assuming a contract has been formed and is not avoidable, these materials consider the nature, meaning, and effect of the terms of the contract, with special emphasis on the distinction between promises and conditions, and also considers when some terms may be unenforceable because they are unconscionable.  The materials conclude by looking at the consequences of breach of contract. 

     Supplementary reading:   Farnsworth 1.1-1.3.