Keith Mack
A contract is a legally enforceable agreement between two or more parties. Black's Law Dictionary defines a contract as an agreement, upon sufficient consideration, to do or not do a particular thing. The dictionary further differentiates between consensual, real, constructive, gratuitous, onerous, joint, principal, and accessory contracts. The interpretation of terms in a contract is crucial, as it can significantly impact how a court interprets it and the implications for the parties involved.
| Characteristics | Values |
|---|---|
| Definition | An agreement to do or not to do a certain thing |
| Legality | Legally enforceable |
| Agreement | Mutual assent on the part of two or more persons |
| Bargain | Exchange of promises or performances |
| Promise | Manifestation of intention to act or refrain from acting in a specified way |
| Consideration | Element of exchange between parties that satisfies the legal requirement of a contract |
| Consensual Contracts | Completed by the agreement of the contracting parties without external formalities |
| Real Contracts | Requires something more than mere consent, such as a loan of money or a pledge |
| Constructive Contracts | Arise when the law prescribes the rights and liabilities of persons who have not entered into a contract |
| Gratuitous Contracts | Object is the benefit of the person with whom it is made, without profit or advantage received or promised as consideration |
| Onerous Contracts | Something is given or promised as a consideration for the engagement |
| Principal Contracts | Entered into by both parties on their own account |
| Accessory Contracts | Made for assuring the performance of a prior contract |
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What You'll Learn
Consensual, real and constructive contracts
A contract is an agreement to do or not do a certain thing, upon sufficient consideration. It can be a written document or a verbal agreement.
Consensual Contracts
Consensual contracts are formed through the mutual agreement and consent of all parties involved. These are legally binding agreements that create obligations that can be enforced by law. For example, a lease agreement between a landlord and a tenant is a consensual contract, with obligations on both sides.
Real Contracts
Real contracts involve the exchange of a physical object or property. They are legally binding agreements that create obligations that can be enforced by law. For instance, agreeing to sell your car to someone for a certain amount of money is a real contract.
Constructive Contracts
Constructive contracts, also known as quasi-contracts, are created by the law to prevent unfairness and unjust enrichment. They are legal obligations that arise when one person gives a benefit to another, and the recipient keeps that benefit without paying for it. For example, if a contractor is hired to build a house and does not complete the work, the homeowner may be able to recover the cost through a constructive contract, as the contractor has benefited from the payment without fulfilling their side of the agreement.
In summary, these three types of contracts differ in their formation and nature: consensual contracts are formed through mutual consent, real contracts involve the exchange of physical objects or property, and constructive contracts are created by the law to address situations of unfairness and unjust enrichment.
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Gratuitous and onerous contracts
A contract is an agreement to do or not do a particular thing. It is a legally enforceable agreement, whether written or oral.
Gratuitous contracts are those in which the object is the benefit of the person with whom the contract is made, without any profit or advantage received or promised as a consideration. In other words, the benefit is conferred upon one party without any compensation or reciprocal benefit being expected from the other party. Gratuitous contracts are sometimes called contracts of beneficence, and they can arise from gratitude for a benefit previously received or from the hope of receiving one in the future.
Onerous contracts, on the other hand, are those in which something is given or promised as a consideration for the engagement or gift, or some service, interest, or condition is imposed on what is given or promised, even if it is unequal in value. Onerous contracts are often associated with a cost or burden that exceeds the expected benefits. In accounting, an onerous contract refers specifically to a contract that will cost a company more to fulfill than what it will receive in return. This term is defined by the International Financial Reporting Standards (IFRS) and must be accounted for on balance sheets in many countries. However, the United States follows a different set of accounting standards under GAAP, where losses, obligations, and debts on onerous contracts are typically not recognized.
It is important to distinguish between gratuitous and onerous contracts as it can impact the interpretation and enforcement of the agreement. The classification of a contract as gratuitous or onerous can also have legal implications in the event of a breach, as the remedies and liabilities may differ.
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Principal and accessory contracts
A contract is an agreement between two or more parties to do or not do a particular thing. It can be written or oral, but it must be legally enforceable. According to Black's Law Dictionary, a contract can be defined as:
> "An agreement, upon sufficient consideration, to do or not to do a particular thing."
Black's Law Dictionary also differentiates between consensual contracts, real contracts, and constructive contracts. Consensual contracts are founded on the mere agreement of the contracting parties without any external formalities. Real contracts require something more than mere consent, such as a loan of money or a pledge. Constructive contracts, on the other hand, arise when the law prescribes the rights and liabilities of persons who have not actually entered into a contract but between whom it is just for one party to have a right and the other to be subject to a corresponding liability.
Gratuitous contracts are those where the object is to benefit one of the contracting parties without any profit or advantage received or promised in return. Onerous contracts, in contrast, involve an exchange of value, such as a promise or service, as consideration.
Within the broader category of contracts, there are principal contracts and accessory contracts. A principal contract is one that stands on its own, justifies its own existence, and is not subordinate or auxiliary to any other contract. In other words, it is a primary agreement between the contracting parties. An accessory contract, on the other hand, is made to assure the performance of a prior contract, known as the principal contract. This can be done through suretyship, mortgage, pledge, or other types of security agreements.
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Legally enforceable agreements
A contract is a legally enforceable agreement between two or more parties. According to Black's Law Dictionary, a contract is an agreement to do or not do a particular thing, upon sufficient consideration. This consideration is an essential element of a contract, referring to the exchange between parties that satisfies the legal requirement. It can be a promise, performance, or something of value.
There are several types of contracts, including consensual, real, constructive, gratuitous, onerous, joint, principal, and accessory contracts. Consensual contracts are formed solely by the agreement of the parties, without any external formalities. Real contracts involve something more than mere consent, such as the loan of money or a pledge. Constructive contracts arise when the law imposes rights and obligations on parties who have not actually entered into a contract but have a relationship that justifies such rights and obligations. Gratuitous contracts are those where one party benefits without receiving any profit or advantage, while onerous contracts involve an exchange of value. Joint contracts involve multiple promisors or promisees, and principal contracts stand on their own, while accessory contracts support the performance of a prior contract.
The interpretation of contract terms can significantly impact how a court interprets a contract. Even definitions from Black's Law Dictionary can be susceptible to multiple meanings. Attorneys reviewing contracts must consider the implications of the language used and whether it could be problematic for their clients if a dispute arises.
The breach of a contract can have varying effects, depending on whether the contract is considered indivisible or divisible. If a contract is indivisible, and the consideration is illegal, the entire contract is void. However, if the consideration is divisible and only part of it is illegal, the contract is void only for that part.
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Contractual terms and their interpretation
A contract is defined by Black's Law Dictionary as an agreement to do or not do a particular thing, upon sufficient consideration. This can be an intangible agreement or a tangible document that sets forth the agreement.
Contractual interpretation begins with the plain language of the contract, with a "plain meaning" analysis in any contract dispute. The intention of the contracting parties controls its interpretation, and this must be gathered from the instrument as a whole, in context. The factual context and background are important, as courts will seek to interpret the whole contract and find a consistent meaning. If there is ambiguity, the court will adopt an interpretation that reflects commercial common sense, as long as this does not conflict with the natural meaning of the words used.
There are several types of contracts, including:
- Consensual contracts: founded on the agreement of the parties without external formalities.
- Real contracts: those that require something more than consent, such as a loan of money.
- Constructive contracts: arise when the law prescribes rights and liabilities for parties who have not actually entered into a contract.
- Gratuitous contracts: where the object is the benefit of the other party without profit or advantage received or promised in return.
- Onerous contracts: where something is given or promised in exchange for an engagement, gift, or service.
- Principal contracts: stand on their own and are not subordinate to any other contract.
- Accessory contracts: assure the performance of a prior contract.
Key contractual terms include:
- Express Terms: written terms or those verbally agreed upon before or at the time the contract is made.
- Implied Terms: terms implied by custom and practice, which can be overridden by express terms.
- Indemnity: a contractual obligation to compensate another party for any loss they suffer.
- Condition: an essential term in a contract, the failure of which results in a breach of contract.
- Consideration: the benefit given by each party to the other in exchange for a contractual promise.
- Counterpart: a copy of a contract, often created so each party may have its own copy.
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Frequently asked questions
A contract is defined as an agreement to do or not do a certain thing. This agreement may be intangible or set forth in a tangible document.
There are several types of contracts, including:
- Consensual contracts: founded upon and completed by the mere agreement of the contracting parties without external formalities.
- Real contracts: require something more than mere consent, such as a loan of money or a pledge.
- Gratuitous contracts: of which the object is the benefit of the person with whom it is made, without any profit or advantage received or promised in return.
- Onerous contracts: where something is given or promised in exchange for the contract.
- Principal contracts: entered into by both parties on their own account, standing by itself and justifying its own existence.
- Accessory contracts: made to assure the performance of a prior contract.
The effect of breaching a contract depends on whether the contract is considered indivisible or divisible. If a contract is indivisible, meaning the performance of every part is essential, and it is against the law, then the contract is void. If the contract is divisible and only part of it is illegal, then the contract is void only regarding that part.
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