Start Here: 5 Things You MUST Know
A contract needs 4 elements: Agreement, Capacity, Legal purpose, Consideration (ACLC)
Insurance policies are unilateral contracts — only the insurer makes a promise
Void = never a contract. Voidable = valid until the protected party cancels
Implied-in-fact = real contract from behavior. Implied-in-law = court fiction to prevent injustice
Only parties in privity can sue — except third-party beneficiaries
1. What is a Contract?
Contract
A legally enforceable promise. Not every promise is a contract — only those that meet all four legal requirements.
Think of the four elements as legs on a table. Remove any one leg, and the table falls. Every enforceable contract — whether an insurance policy, a car purchase, or a handshake deal — must have all four:
A
Agreement
Offer + Acceptance
C
Capacity
Legally qualified
L
Legal Purpose
Not illegal
C
Consideration
Value exchanged
Memory Trick: ACLC
Agreement, Capacity, Legal purpose, Consideration. Miss any one and the contract fails.
Key Parties in a Contract
Promisor
The party making the promise.
Promisee
The party to whom the promise is made.
Third-Party Beneficiary
Not a party to the contract but has a legal right to enforce it.
Privity of Contract
The legal relationship between parties to a contract. Ordinarily, only parties in privity can sue for breach. The exception: a third-party beneficiary CAN sue even though they are not in privity.
Real-World Scenario: Third-Party Beneficiary
The Setup: Maria buys a life insurance policy and names her daughter Sofia as the beneficiary.
What Happens: Maria dies. The insurer refuses to pay, claiming a technicality.
The Result: Sofia can sue the insurer even though she was not a party to the insurance contract. She is a third-party beneficiary with enforcement rights.
Breach of Contract
The failure of a party, without legal excuse, to perform all or part of the contract. If you promised and did not deliver — and you have no valid legal reason — that is a breach.
2. Types of Contracts
Contracts are classified along four dimensions. Each contract can be described using one label from each pair.
A. Bilateral vs. Unilateral
Bilateral Contract
BOTH parties make promises to each other.
Example: You agree to buy a house; the seller agrees to sell it. Both sides promised — you to pay, them to deliver the deed.
Unilateral Contract
ONLY ONE party makes a promise.
Example: "I will pay $500 to whoever finds my lost dog." Only you promised. The finder is not obligated to look — but if they find it, you must pay.
Exam Tip: Insurance = Unilateral
Insurance policies are classic unilateral contracts. The insurer promises to pay if a covered loss occurs, but the insured does not promise that a loss will occur.
B. Executed vs. Executory
Executed Contract
Completely performed by both parties. Everything promised has been done.
Example: You paid the mechanic $200, and the mechanic already fixed your car. Both sides fully performed. Done.
Executory Contract
Not completely performed by one or both parties. Something is still owed.
Example: You signed a 12-month lease and lived there 3 months. 9 months of performance remain — the contract is executory.
Key Distinction
A contract can be partly executed and partly executory. If you paid for a car but have not received it, the contract is executed on your side (you paid) but executory on the dealer's side (not yet delivered).
C. Express vs. Implied Contracts
Express Contract
Terms and intentions are clearly stated — either written or oral.
Example: A signed insurance policy. Or: "I will paint your house for $3,000 by Friday."
Implied-in-Fact
A real contract created by the parties' behavior, not words.
Example: You sit at a restaurant and order food. No one signs anything, but your behavior creates a contract — you will pay for the meal.
Implied-in-Law (Quasi-Contract)
Not an actual contract. A legal fiction imposed by courts to prevent unjust enrichment.
Example: An unconscious person is rushed to the ER. They never agreed to pay, but the law creates an obligation so the hospital can recover reasonable costs.
Critical Exam Distinction
Implied-in-FACT = real contract based on behavior. Implied-in-LAW = NOT a real contract, just a court-created obligation to prevent injustice. The exam loves testing this difference.
D. Void vs. Voidable Contracts
Void Contract
Never was a contract. Despite the parties' intentions, it never reached contract status. Cannot be enforced or ratified.
Example: A "contract" to commit a crime (e.g., hiring someone to rob a store). Void from the start — no court will enforce it.
Voidable Contract
Valid and binding UNTIL the protected party chooses to cancel it. Can be ratified (confirmed) to become fully binding.
Example: A minor signs a contract to buy a car. The minor can honor it OR disaffirm (cancel) it. Their choice.
Contract Classification Flow
Cheat Sheet
Print this page for quick reference4 Elements of a Contract (ACLC)
- Agreement (Offer + Acceptance)
- Capacity to Contract
- Legal Purpose
- Consideration (value exchanged)
Contract Types
- Bilateral = both promise | Unilateral = one promises
- Executed = done | Executory = obligations remain
- Express = stated | Implied = behavior/law
- Void = never valid | Voidable = valid until cancelled
Key Parties
- Promisor — makes the promise
- Promisee — receives the promise
- Third-party beneficiary — can enforce, not in privity
Insurance Contracts
- Unilateral (only insurer promises)
- Executory (insurer's obligation continues)
- Express (written policy)
Exam Trap Alerts
1. Void vs. Voidable — Know the Difference Cold
Void = never was a contract, can NEVER be ratified. Voidable = IS a valid contract UNTIL the protected party cancels it, and CAN be ratified to become fully binding.
2. Implied-in-Fact vs. Implied-in-Law
Implied-in-fact = a REAL contract shown by behavior (restaurant ordering). Implied-in-law = NOT a real contract, just a legal fiction to prevent unjust enrichment (ER treatment of unconscious patient).
3. Insurance Policies Are Unilateral
Do not confuse with bilateral. Only the insurer makes a promise (to pay claims). The insured does not promise a loss will occur — they just pay premiums.
4. Third-Party Beneficiaries CAN Sue
Even though they are not in privity of contract, third-party beneficiaries have the legal right to enforce the contract. This is the main exception to the privity rule.
Quick Reference Summary
Contract
A legally enforceable promise requiring ACLC.
Bilateral vs. Unilateral
Both promise vs. only one promises.
Executed vs. Executory
Fully done vs. obligations remain.
Express vs. Implied
Stated in words vs. shown by behavior (or law).
Void vs. Voidable
Never valid vs. valid until cancelled.
Privity
Only contract parties can sue — except third-party beneficiaries.