Contract Law Principles

Overview

This lecture covers the essential principles of contract law, including contract formation, enforceability, defenses, third-party rights, assignment, the Statute of Frauds, parol evidence, conditions, breach, remedies, and discharge.

Formation of Contracts

• Contracts can be bilateral (promise for a promise) or unilateral (promise for an act).
• A binding contract requires offer, acceptance, and consideration.
• Void contracts have no legal effect; voidable contracts can be avoided by one party; unenforceable contracts cannot be enforced by courts.
• UCC Article 2 governs contracts for the sale of goods; common law governs service and land contracts.

Mutual Assent: Offer and Acceptance

• An offer is an objective manifestation of willingness to contract, giving the offeree the power to accept.
• Offers can terminate by lapse of time, death, destruction, revocation, or rejection/counteroffer.
• Acceptance must generally mirror the offer (mirror-image rule at common law).
• The mailbox rule: acceptance effective on dispatch unless otherwise stated.
• Silence is not acceptance unless prior dealings or the offer indicate otherwise.

Consideration and Substitutes

• Consideration requires a bargained-for exchange or legal detriment.
• Preexisting duty rule: doing what one is already obligated to do is not consideration.
• At common law, contract modifications require consideration; under UCC, only good faith is needed.
• Promissory estoppel substitutes for consideration when reliance on a promise causes injustice.

Defenses to Formation

• Lack of capacity (infancy, mental illness, guardianship, intoxication, corporate incapacity) can make contracts void or voidable.
• Illegality or unconscionability makes a contract unenforceable.
• Contracts violating public policy are not enforced.

Third-Party Beneficiary Contracts

• Intended beneficiaries can enforce contracts; incidental beneficiaries cannot.
• Rights vest when the beneficiary relies, assents, or sues.
• Defenses available to the promisor against the promisee are generally available against the beneficiary.

Assignment and Delegation

• Rights under a contract can usually be assigned unless it changes obligor’s duty or risk.
• Duties can be delegated unless contract is for personal services or prohibits delegation.
• Novation substitutes a new party, releasing original obligor.

Statute of Frauds

• Certain contracts (marriage, suretyship, land, one year, goods $500+) must be in writing.
• Writing must be signed by the party to be charged and state essential terms.
• Exceptions exist for partial performance, specially manufactured goods, or merchant confirmation.

Parol Evidence Rule

• Prior or contemporaneous external evidence is inadmissible to contradict fully integrated written agreements.
• Evidence can be admitted to interpret, supplement, or prove a defense, ambiguity, or condition precedent.

Conditions

• Conditions are events that must occur before performance is due.
• Express conditions require strict compliance; implied conditions require substantial performance.

Breach and Remedies

• Material breach excuses further performance; minor breach allows damages but not withholding performance.
• Anticipatory breach allows the non-breaching party to sue before performance is due.
• Damages include expectancy (benefit of the bargain), consequential, liquidated, nominal, and duty to mitigate.
• Specific performance and restitution are equitable remedies.

Discharge

• Contracts may be discharged due to impossibility, impracticability, or frustration of purpose.
• Rescission and release by agreement also discharge contract duties.

Key Terms & Definitions

• Bilateral contract — Promise exchanged for another promise.
• Unilateral contract — Promise exchanged for a completed act.
• Consideration — Bargained-for exchange or detriment induced by a promise.
• Promissory estoppel — Promise enforceable due to reasonable reliance and resulting injustice.
• Statute of Frauds — Law requiring certain contracts to be in writing.
• Parol Evidence Rule — Prohibits external evidence to contradict an integrated written contract.
• Material Breach — Substantial failure to perform under a contract, excusing further performance.

Action Items / Next Steps

• Review case examples and distinctions between UCC and common law.
• Memorize Statute of Frauds categories (MS. LOU: Marriage, Suretyship, Land, One year, UCC).
• Prepare for application-based questions on offer termination, consideration, and remedies.