LAW OF CONTRACTS

BY

WILLIAM CHARLES WERMUTH, M.S., LL.B.*

PART I

INTRODUCTORY TOPICS

CHAPTER I.

DEFINITION AND HISTORY OF CONTRACT.

1. Rights and obligations.—A right consists of the power or capacity one has to influence the action of another. It may be derived from the moral sentiment of the community, when it is called a moral right. If derived from the government and enforced by the court, it becomes a legal right. In addition to moral and legal rights, there exist physical rights, which are based on might.

Obligations are of two sorts: delictual and contractual. A delictual obligation arises from the violation of a preëxisting right. It does not depend for its creation upon any desire of or attempt by the parties concerned to create it, but arises by virtue of one's place as an individual of society. Thus, A owes B a duty not to assault him. B enjoys a preëxisting

* Lecturer, Northwestern University Law School; of the Chicago Bar. Assistant Editor: "Modern American Law." Contributor to legal and medical periodicals.

right from which a new right arises when the first is violated, entitling him to damages. The right of B is said to be a right in rem, that is, against the world at large. Such rights are to be found in the law of torts.

Contractual obligations arise between the parties by means of their acts. They depend on no rights that the parties have had. Thus, when A and B enter into a contract, new rights and duties are created by A and B which did not previously exist. This right is one in personam, that is, against determinate persons.

The determination of the rights and duties created by contract furnish the scope of this article.

2. Contract defined.-A contract is an agreement between two parties, resulting in an obligation or legal tie, by reason of which one party is entitled to have certain stipulated acts performed or forborne by the other. There are many definitions of a contract. Blackstone states that "A contract is an agreement, upon sufficient consideration, to do a particular thing."1 In Sturges v. Crowninshield it is said that "A contract is an agreement in which a party undertakes to do, or not to do, a particular thing." A contract is also said to be an agreement enforcible at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others. According to the etymology of the word,

3

12 Blackstone, Commentaries, p. 446.

2 Marshall, C. J., in 4 Wheat. 122 (U. S.).

3 Anson, Contracts (English ed.), p. 9.

from contraho, a contract is a drawing together of the minds of the parties until they meet in agreement.*

3. Essentials of the definition.-There are four things which are necessary to make a contract: (1) the offer and acceptance, called the agreement; (2) the form or the consideration; (3) the parties; (4) the subject matter."

Briefly, (1) the agreement, consisting of the offer and acceptance, is the assent given by each party to the other with reference to the subject matter, the parties being of the same mind and intention concerning the matter agreed upon. (2) The form is that which the law requires to give the agreement legal recognition. Thus, a deed must be under seal, and the court will not enforce it unless it is. Or, if a contract is not under seal, it must have a consideration. Consideration means a forbearance, or a detriment, or a giving up of something one is not bound to give. Thus, to make a promise one is not bound to make is a consideration for another promise." Furthermore, to enforce a promise, a writing may be necessary. (3) The parties must consist of two or more persons, for no one can make a contract with himself. Finally, (4) the subject matter is the thing concerning which the contract is made. It may be as varied as the necessities of human life. The only limitations on what may be the subject matter of contracts are impossible subjects and those disallowed for reasons to be mentioned.

4 McNulty v. Prentice, 25 Barb. 204 (N. Y.).

5 Fuller v. Kemp, 138 N. Y. 231.

See Chap. III.

7 Faulkner v. Lowe, 2 Ex. 595 (Eng.).

Suppose A promises to enter B's service for one year, and B promises to pay A $1,000 for his work. The agreement consists of the meeting of minds of A and B as to the terms of the contract. The consideration consists of the mutual promises. The parties, of course, are A and B, and the subject matter consists of the services to be rendered.

4. Use of term "contract."-The term "contract" is used to designate every description of agreement or obligation, whether verbal or written, with or without seal, by which one party is bound to another to perform or omit to perform a stipulated act. It denotes that one person is bound to another to do or render something, and that a duty is imposed as well as a right conferred, though "obligation," "agreement," "covenant," and "promise" are sometimes used in the same sense. In the Roman civil law, "obligation" was the term used to designate all the rights and liabilities which are termed "rights in personam," or the rights which one person has to acts or forbearances from others.

When one inquires whether it is the agreement that constitutes the contract, or the obligation resulting from the contract, at once one finds that the word "contract" is used in various senses. Sometimes it denotes the fact of agreement, and sometimes the nature of agreement. Again, it may refer to the written instrument which contains the agreement. Sometimes it denotes the obligation resulting from the agreement. The terms "void contracts" and "illegal contracts" have been adopted although there is no obligation whatever in such situations.

The contractual obligations which the common law recognized were enforced, and are still enforced, not because those obligations are the result of agreement, but because certain procedure afforded remedies for certain wrongs.

5. Classification of contracts.-The subject of contracts has been variously classified. With respect to form, contracts are: (1) Formal contracts; (2) Quasi-formal contracts; and (3) Simple contracts.8

(1) Formal contracts. These obligations are dependent for their validity upon their form, and may be divided into contracts of record and contracts under seal. An example of a contract of record is a judgment of a court, or a recognizance. These are not true contracts, however, for the obligation is imposed by law, and not by the agreement of the parties.

A contract under seal, also called a specialty, is a written promise or obligation which derives its validity, at common law, from its form alone, to-wit, the presence of a seal.

Thus where A executes an instrument by which he agrees to work for B for a year, and the word "Seal" appears after his signature, the contract is a specialty.

(2) Quasi-formal. Quasi-formal contracts are those which are partly dependent on form and partly on consideration. They are more commonly included under the term simple contracts. An example is a bill of exchange.

(3) Simple contracts. All other contracts are simple contracts, whether they be oral or in writing."

8 See § 6.

There is no distinction as to validity, whether a contract be unwritten or in writing, unless the Statute of Frauds applies. See Chap. VI.