Classification of Contracts in the United States

Classification of Contracts

A contract can be defined as an agreement between two or more parties that is enforceable in the courts. To rise to the level of an enforceable contract, an agreement must meet certain criteria: there must be a valid offer and acceptance, the agreement must be supported by consideration, the parties must have the legal capacity to enter into a contract, the agreement must be genuinely assented to by the parties involved, and it must be for a legal purpose. In some cases, the agreement must also be evidenced by a signed writing. If one of these necessary elements is missing from an agreement, a valid contract will not be formed.

Contracts can be classified as express, implied, unilateral, bilateral, simple, and formal.
Each of these classifications is examined next.

Express Contracts

Express contracts are formed when contracting parties specify the terms of their agreement orally or in writing. In an express contract, the offeror (the person who makes an offer to enter into a contract) articulates the terms of the offer to the offeree (the person to whom the offeror makes an offer to enter into a contract) either orally or in writing.

Implied in Fact Contracts

While most people usually specify contractual terms in some detail, it is possible to enter
into a binding contract without uttering a single word if the action of the parties clearly
indicates their intention to enter into a binding contract. In these situations, the resulting
contract is said to be implied in fact.

Bilateral Contracts

A bilateral contract is formed by the mutual exchange of promises between the contracting
parties. In a bilateral contract, both parties make enforceable promises to each other as
part of their contractual agreement. Consequently, a bilateral contract has two promisors
(persons making contractual promises) and two promisees (persons to whom a contractual
promise is made). To put it another way, bilateral contracts involve the mutual exchange
of promises of present or future performance by the contracting parties.

Once the contract arises, there are two obligors (persons obligated to perform contractual promises) and two obligees (persons entitled to receive the benefit of the obligor’s performance in a contract).

Unilateral Contracts

A unilateral contract is formed when one party exchanges a promise of future performance
to induce another party to take some specific action. In other words, a unilateral
contract is an exchange of a promise for an act. Unlike a bilateral contract, where there is
a mutual exchange of promises making each party to the contract both a promisor/obligor
and a promisee/obligee, a unilateral contract contains only one promisor/obligor. The
promisor in a unilateral contract makes a conditional promise to the promisee to induce
him to undertake some action.

The obligation of the promisors will come into existence only if the promisees undertake
the desired action. Once the promisees complete the performance in question, the
promisors will be obligated to perform as promised. But the promisees are not under any
obligation to perform; it is completely up to them whether or not to accept the agreement
offered by the promisors by beginning the requested performance.

Note that whether a contract is unilateral or bilateral depends on the terms offered by
the promisor. If the promisor is seeking acceptance through the promisee’s performance
(a promise in exchange for an act), then the contract is unilateral; but if the promisor is
seeking a present commitment for future performance by the promisee (a mutual exchange
of promises), then the contract is bilateral.

Simple Contract

A simple contract is any agreement that need not follow a specific format to be enforceable.
Simple contracts can be oral, written, express, or implied in fact. The vast majority
of contracts entered into by businesses and individuals are simple contracts.

Formal Contract

At common law, the most common type of formal contract was one that needed to be
in writing, signed, witnessed, and sealed by the parties. Today, most jurisdictions have
abolished the significance of the seal for most contracts, and Article 2 of the Uniform
Commercial Code (UCC) abolishes the significance of seal in all states for contracts
involving the sale of goods, but the law still recognizes a number of formal contracts
that are required to be in a specific form and contain certain specific language to be enforceable.

They include negotiable instruments such as checks, drafts and notes, letters
of credit (a promise to honor a demand instrument when it is presented for payment), and
recognizances (formal acknowledgments of indebtedness made in court).

Author: Prof. Victor López

Leading Case Law

Among the main judicial decisions on this topic:

Weichert Co. Realtors v. Ryan

Information about this important court opinion is available in this American legal Encyclopedia.

References

See Also

• Contracts