TYPES OF CONTRACTS

In this month’s post, we take a break from discussing business entity types and examine the types of contracts recognized under Texas law. Texas law recognizes several broad types of contracts. Each exists under distinct circumstances and offers a unique theory of liability and recovery.

Express Contracts

Express contracts exist under traditional circumstances and are those brought to mind when one hears the word “contract.” Express contracts arise when the contracting parties set forth the agreement’s terms in a written instrument. The document memorializes the parties’ mutual intent to be bound by the contract, and a court need not review the parties’ conduct or other circumstances to infer the parties’ intentions to adhere to the agreement. For example, a written agreement in which one party promises to purchase a vehicle from another party in exchange for money is an express contract. These contracts feature several components, each of which serves a distinct function. Although even express contracts cannot eliminate entirely the risk of disputes and litigation, express contracts often reduce the severity and length of disputes and lawsuits surrounding such agreements thanks to their written nature. The statute of frauds requires that agreements concerning certain subjects, such as real estate transactions, be express contracts. Such agreements otherwise are not enforceable. We will discuss the statute of frauds in greater detail in a separate blog post.

Implied-in-Fact Contracts

Implied-in-fact contracts differ from express contracts in that the former lacks a written instrument and requires inferences from the facts and circumstances of the case at issue. In the absence of a written contract, the parties’ mutual assent to the agreement must arise from the parties’ acts and conduct. For example, an implied-in-fact contract may exist when a patron walks into a restaurant, sits at a table, and orders food or drinks. The restaurant’s seating the patron and sharing the restaurant’s menu constitutes an offer to sell goods and services; meanwhile, the patron’s sitting at the table, review of the menu and its prices, and order for food and drinks constitute review of the implied-in-fact contract’s terms, agreement to those terms, and acceptance of the restaurant’s offer. This is a simple example, and implied-in-fact contracts are often more complex than this and may demand more thorough examination. Although implied-in-fact contracts constitute true and enforceable contracts, these agreements are often more difficult to prove.

Quasi-Contracts and Implied-in-Law Contracts

Quasi-contracts, also called implied-in-law contracts, represent the largest departure from the traditional notion of a contract and are not traditional agreements at all. The quasi-contract is strictly a legal theory or tool fabricated, imposed, and used by courts in the interest of justice and to prevent an unjust outcome. For example, if a consumer orders a product from an online store, the online store delivers the product to the wrong residence, and the incorrect recipient opens, accepts, and consumes the product even though the incorrect recipient did not order the product, a court may impose a quasi-contract and order the incorrect recipient to pay the cost of the product to the proper recipient or to the store in the interest of justice.

Because quasi-contracts are not traditional contracts at all, they feature several unique characteristics. A quasi-contract may arise and impose obligations even though no promise was ever intended or made between the parties and notwithstanding the parties’ intent. In fact, a party cannot recover under a quasi-contract theory at all if an express or implied-in-fact contract exists on the matter at issue. In our example, a court may impose a quasi-contract between the incorrect recipient and intended recipient and require the former to pay the latter even though the incorrect and intended recipients never entered or even contemplated an agreement.

Unilateral and Bilateral Contracts

A bilateral contract exists where each of two parties is both an obligor and an obligee. In other words, parties form a bilateral contract when each promises something as consideration or compensation for the other. Most traditional contracts that come to mind are bilateral contracts. An employment contract, for example, is a bilateral contract because the employee’s labor benefits the employer and gives rise to the employer’s duty to pay the employee. A contract for the sale and purchase of a vehicle is also a bilateral contract because the buyer promises to pay money for the vehicle and the seller promises to deliver title and possession of the vehicle to the buyer.

In a unilateral contract, only one party promises to perform. Unilateral contracts arise most straightforwardly in the case of rewards and contests. For example, a unilateral contract exists where one person runs an advertisement to pay anyone who finds and returns a missing pet. In this case, only the party running the advertisement promises any performance; no one has promised to find and return the missing pet. The party promising the reward may revoke the offer before a responder performs by returning the pet, and the promising party becomes obligated to pay the reward upon return of the pet.

All of these contracts may be breached, and litigating parties may recover on any of these theories. The recoveries available in each instance vary by the type of contract and vary by the case. We will examine breaches of contract and recoveries for breaches of contract in a separate discussion.

Samy Diab

Attorney

Diab Law Firm, PLLC