Types of Contracts
In Lesson 1, we introduced the purpose of contracts: They are a way for parties to memorialize agreements in a form that courts can interpret. In this lesson, we’re going to look at the different types of contracts.
We type contracts based upon the rights and obligations of the parties. We can think of these in several dimensions:
• unilateral and bilateral contracts
• express and implied-in-fact contracts
• “fairness” contracts
Unilateral vs. Bilateral
Bilateral contracts are what most people think about when they think at all about business agreements. It’s the sort of document that you see on TV, where people sit around a table and sign on the dotted line. While it’s not uncommon for multiple parties to sign on to an agreement, in this lesson, we’re going to look at the two-party contract.
Example: Fred agrees to pay Ethel $2,500 to build a website for his furniture business.
Unilateral contracts, on the other hand, do not require mutual agreement. Instead, the other party has to perform.
Example: Ginger posts: “$500 for finding lost cat Mittens.” Bill delivers Mittens. Bill has a right and Ginger is obligated to pay $500.
Express vs. Implied in Fact
Express contracts are an exchange of promises that are either spoken or written down (or some combination of both).
Implied-in-fact contracts are situations where the facts impose a contract on the parties. For example, Bob mows Daisy’s lawn every Friday for $25, and Daisy has paid for the last three weeks. If on the fourth Friday, Bob mows the lawn but Daisy refuses to pay, then courts will likely impose an implied contract on Daisy because of the pattern of payments in the past and the fact that Daisy benefited from Bob’s work on the fourth Friday.
Also, look out for implied contracts when there is already an express contract in place. Chuck signs a $500 contract with David to shovel the snow from his restaurant’s parking lot. Halfway through the work, David sees the mounds of snow and says that he also needs someone to haul those away. Chuck says he’ll do it but doesn’t say for how much. Later, Chuck sends David a bill for $800. David refuses to pay for the additional $300, citing the contract for the $500. Courts will likely decide that David owes the $300 for the implied addition to the original contract (provided that $300 is a reasonable charge for hauling snow). In a twist, David may not need to pay for the hauling if he started with a unilateral contract: “$500 for removing snow from my carpark.” If Chuck had shoveled the snow and removed it, he would only be entitled to $500.
Sometimes, courts will impose contracts even though neither side had any intention to enter into an agreement, because one side is unfairly enriched by the other.
A common example would be if Cindy orders a pizza, but it’s delivered to Ernie by mistake. If Ernie eats the pizza, then he has been unfairly enriched, and a court could order him to pay back Cindy or maybe the restaurant—if it refunded Cindy’s order. These “quasi-contracts” are imposed by the court for the sake of “fairness.”
In the next lesson, we’ll look at the different elements that make up a contract.
See you tomorrow.
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