Theory of Contract


Law of contracts affects all aspects of daily life. Contracts are the basis of many of our daily activities. They provide the means for individuals and businesses to sell and otherwise transfer property, services, and other rights. Without enforceable contracts, commerce would collapse.

There are 2 kinds of contract:

  1. Commercial Law Contracts:  having to do with commerce.
  2. Common Law Contracts:  derived from the judgments and decrees of courts.

What is definition of contract?  Contract is “an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration.” If one party fails to perform as promised, the other party can use the court system to enforce the contract and recover damages or other remedy.

Other name of contract such as:

  • Agreement;
  • Treaty;
  • Convention


  1. Consensual Principle / genuine assent.
  2. Freedom of contract Principle à the freedom to determine the content and form of agreement
  3. Pacta sunt servanda Principle which the parties concerned to implement the contents of the agreement
  4. Personality Principle is the agreement applies to the parties who entered into the agreement it self ( Art. 1315 jo 1340). Execption: Art 1317.

Good Faith Principle based on Art. 1338 (3) agreement must be done in good faith. Good faith must be interpreted objectively.


Definition of law is a written rules made by the authorities that regulate human behavior in social life, enforceable and contain strict sanctions. Which scope who regulate contract law? There are 5 branches of law:

  1. Criminal Law
  2. Private Law
  3. Constitutional Law
  4. Administrative law
  5. International Law

Law of contract included in Private Law.


  1. Founded on an agreement./Based on the parties’ genuine assent / voluntary involvement as a party to the contract
  2. Made by parties having the capacity to contract ;   subject of contract
  3. Specific object;  object of contract
  4. Object matter must be legal


Subject of contract must have the capacity to act, which is the power to do acts with legal effect. There are 2 subject of contract: PERSON and ENTITIES.


Related to person as a subject of contract, the following circumstances modifiy or limit capacity to act:

  1. Minority, min. age is 21 years old (for country with Civil Law contract), for common law contract, minority age is 18 years old;
  2. Insanity
  3. State of being deafmute
  4. Prodigality
  5. Insolvency
  6. trusteeship


Law Contract
Who has the duty Groups of people, generally everyone. The specific individuals who willfully enter into the agreement.
What binds individuals Laws of society bind everyone in it. Specific agreements in which the parties mutually bind themselves.


  • —Title / Name of Agreement;
  • —Parties (Name & Domicile);
  • —Purpose of Contract;
  • —Rights and Obligations;
  • —Capital*;
  • —Disputes resolution.


  1. Commercial Law Contracts:  having to do with commerce.
  2. Common Law Contracts:  derived from the judgments and decrees of courts.


  1. Unilateral Contract: A contract in which one party makes a promise in exchange for an action by the other party. Unilateral Contracts is a promise on one side only.
  2. Bilateral contract involves a promise in exchange for another promise. Bilateral Contracts are promises on both sides.


  1. An executory contract is one that has not yet been completely performed. Executory Contract is when a promise remains unfulfilled by one party.
  2. An executed contract is one in which all required actions have been completed. Executed Contract is when the parties have fully performed the promise.


  1. Valid Contract is legally binding and enforceable.
  2. VOID Contract: “void” contract is a contract that is invalid.  A void contract cannot be enforced. Void Contract can never have any legal effect. Contract could be void because of: the object is not specific and the object matter is not legal.
  3. Voidable Contracts 
    • A voidable contract is a contract that could be invalidated, but has not yet been ruled void. Voidable Contract can be affirmed or rejected at the option of one or more of the contracting parties.
    • These are contracts which can be avoided by the minor before he/she turn 21 or within a reasonable time after he/she turns 21
    • They apply to contracts which are of a permanent nature/continuing obligation. Eg: shares, leases and partnerships.
    • With voidable contracts the minor can free himself from future obligations, but will have to pay for benefits already received.


  1. Express Contracts: The contract which the elements are specifically stated, including offer, acceptance and consideration.
  2. Implied Contracts is inferred from the actions or conduct of the parties. ex: When you arrive at the hair salon for your usual cut, it is expected that you will pay for the services rendered. That is an implied in fact contract.
  1. Formal contract – A contract that requires a special form or method of creation
  2. Informal contract – A contract that requires no special form or mode of creation




  1. You order a book of  Your credit card is charged, but no book ever shows up. Was there a legally enforceable contract? Yes, you agreed to pay money and they agreed to send you a book.
  2. Last year, your uncle promised you an iPhone for your 18th birthday.  When you turned 18, he gave you his old broken basic cell phone. Was there a legally enforceable contract? No, while your uncle made a promise, he did not receive any consideration in return.  Consideration has to be more than good feelings.
  3. You signed up for a week long summer basketball camp which cost $100.  You paid and went to the camp.  When you got to the camp, they just had you watch football movies all day. Was there a legally enforceable contract? Yes.  You agreed to pay money to the camp and they were supposed to give you basketball training.
  4. How about: Credit Card Agreement. Signed agreement related to a job. Online agreement when starting a Facebook or email account. An agreement to buy something from a friend. Buying something from a store. Yes, they are also a contract.






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