Contracts

Eileen Forward manufactures inspirational wall plaques worth a dollar or two and ships them unsolicited to devout elderly people along with an invoice for $20.00. Remarkably, most of the recipients pay the invoice, and many of the rest return the plaque to Eileen. Some discard Eileen's package. But some of the recipients keep the plaque and throw the invoice away. Assume there is no statute. Can Eileen collect from those who keep the plaque without paying? If not, why not?

An express contract is determined by words, whether they are written or spoken. An express contract may be a written document or a handshake deal. In any event, the parties intend to form a contract and are aware of doing so. A rancher says to his neighbor, "I'll buy that horse for $250." The neighbor responds, "You've got a deal. Let's shake on it." The two have entered into an express contract.

An implied contract is determined by actions. The parties may be unaware that their actions have legal significance. Nevertheless, the parties are behaving like people who have a contract and would probably realize they are entering into a contract if they thought about it. A woman goes to a doctor's office for minor surgery. They have entered into an agreement, or contract, obliging the doctor to provide quality service and the woman to pay his bill.

In a unilateral contract, one party makes a promise to induce the other party to perform an action in exchange. When the second party acts as requested, the first party is obliged to keep his promise. The classic scenario goes like this. A homeowner says to a painter, "I promise to pay you $1500 if you paint my house before the end of the summer." If the painter completes the job before September 23, the homeowner must pay the $1500.

In a bilateral contract, the parties exchange promises. The classic scenario goes like this. A homeowner says to a painter, "I promise to pay you $1500 if you paint my house before the end of the summer." The painter replies, "You've got a deal. Let's shake on it." The homeowner and the painter have reached an agreement, or contract; both are obliged to keep their promises.

In the above four examples, the parties reached agreements. In the next two, the parties did not reach agreements. Nevertheless, the law treats the following situations as if they were contracts - "non-contract" contracts - and imposes obligations on the parties.

The first "non-contract" is called quasi-contract. One party confers a benefit on another who knowingly accepts it and retains the benefit under circumstances which would make it unfair to keep the benefit without paying for it. That sounds a bit complicated, but the example may clear things up. A gardener mistakenly knocks on the door of the wrong house. He says to the homeowner, "Thanks for your call. I'll finish trimming your hedge before lunchtime." The homeowner says nothing but watches as the gardener begins work. The gardener finishes the job and presents the homeowner with his bill. The homeowner says, "I never called you, and I'm not paying." The law will require the homeowner to pay the bill.

Not all promises create contracts. As you will read in the text, contracts are formed when parties bargain and reach an agreement. But sometimes one person makes a promise that causes another person who relies on the promise to be harmed. For example, a policyholder sends his life insurance company a premium payment on July 1, 1990, and asks how long his coverage will continue. The company accepts the payment and tells the policyholder he is covered through June 30, 1992. In fact, the insurance company typist made an error; the policyholder's coverage expires on June 30, 1991. The policyholder dies late in 1991. The insurance company must pay the benefit, because the policyholder relied on the company's statement. If the company's letter had been correct, the policyholder could have purchased coverage for another year. This "non-contract" liability is called promissory estoppel.