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The Meaning of “Contract” and the Basic Attributes of the Contractual Relationship

      Although contract requires a voluntary agreement between the parties, this does not mean that all voluntary agreements are contracts. People make all kinds of agreements that do not rise to the level of contract. For example, social agreements (the acceptance of a dinner invitation or a commitment to go together to see a movie), a politician’s campaign promises, or a spouse’s promise to clean out the attic next weekend. Courts sometimes describe promises of this kind as moral or ethical obligations, rather than legal ones. The distinction between a legally binding contractual obligation and moral obligation is not always easy to draw, but often this question is settled by determining the intent of the parties (measured objectively). In some cases there may be other indications that the agreement creates only a moral obligation. For example, the requirement of exchange, discussed in section 1.2.2, may be missing. For this reason (as explained in Chapter 7), a promise to give a gift or to make a contribution to charity may create a moral obligation, but it does not qualify as a legally binding contractual obligation.

    §1.2.2 An Exchange Relationship

    As mentioned earlier, a contract is a relationship. By entering into the agreement, the parties bind themselves to each other for the common purpose of the contract. Some contractual relationships last only a short time and require minimal interaction. For example, a contract for a haircut involves a fairly quick performance by the hairdresser, followed by the fulfillment of the customer’s payment obligation. Other contractual relationships, such as leases, construction contracts, or long-term employment contracts, could span many years and require constant dealings between the parties, regulated by detailed provisions in the agreement.

      The essential purpose of the contract relationship is exchange. The trade in property, services, and intangible rights is fundamental to our economy and society, and the primary function of contract is to facilitate and regulate these exchanges. The concept of exchange (discussed more fully in Chapter 7) means that the very essence of contract is a reciprocal relationship in which each party gives up something to get something. These “somethings” are as varied as one could imagine: The owner of a car could sell it for cash or barter it for other goods; a celebrity’s butler may promise to reveal his employer’s dark secrets to a tabloid for cold hard cash; an inventor may trade the rights to her idea for a promise by a manufacturer to develop the idea for mutual profit; a fond uncle may promise his nephew money in exchange for an undertaking not to drink, smoke, and gamble. These situations vary greatly. Some involve tangible things, others intangible rights. Some of the promises have economic value, others do not. Yet their basic format is the same—a bargain has been reached leading to a reciprocal exchange for the betterment (real or perceived) of both parties.

      As discussed in Chapters 7, 8, and 9, the modern concept of contract embraces some transactions in which exchange in the traditional sense is tenuous. Nevertheless, exchange continues to be the principal motivation for contracting and the guiding rationale for the rules of contract law.

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