Contract Law - Class Notes
I. Introduction to Contract Law
Definition: Contract law governs agreements between parties and provides remedies
when one party fails to fulfill their obligations. A contract is a legally enforceable
promise or set of promises.
Purpose: The purpose of contract law is to enforce promises made between parties and
to ensure that transactions are fair, efficient, and predictable.
Sources of Contract Law:
o Common Law: Judicial decisions based on case law.
o Uniform Commercial Code (UCC): Governs contracts for the sale of goods.
o Restatement (Second) of Contracts: A scholarly compilation of common law
principles.
II. Elements of a Contract
To form a valid contract, the following elements must be present:
1. Offer: A clear expression of willingness to enter into a contract on specific terms, made
with the intention of becoming legally bound.
o Objective Test: An offer is evaluated based on how a reasonable person would
interpret it.
o Termination of Offer: An offer may be revoked, rejected, or terminated due to
the passage of time, death of the offeror, or counteroffer.
2. Acceptance: The expression of agreement to the terms of the offer in the manner
required by the offeror.
o Mirror Image Rule: The acceptance must mirror the terms of the offer exactly;
any variation constitutes a counteroffer.
o Mailbox Rule: Acceptance is effective when sent (unless otherwise stated), not
when received.
3. Consideration: Something of value exchanged by both parties to support the contract. It
could be money, goods, services, or a promise to do or not do something.
o Legal Sufficiency: The consideration must be something that the law recognizes
as sufficient.
o Adequacy of Consideration: Courts do not typically examine whether the
consideration is "fair," as long as it is legally sufficient.
4. Capacity: The parties must have the legal ability to enter into a contract.
o Minors, Intoxicated Persons, and Mentally Incompetent Persons may lack the
capacity to contract. Contracts with these individuals may be voidable.
5. Legality: The subject matter of the contract must be lawful. A contract to perform an
illegal act is void and unenforceable.
o Examples of Illegal Contracts: Contracts for illegal gambling, drug trafficking,
or any unlawful activities.
III. Types of Contracts
1. Bilateral Contract: A contract in which both parties exchange promises (e.g., one
promises to pay for goods, and the other promises to deliver them).
2. Unilateral Contract: A contract in which one party makes a promise in exchange for the
performance of an act (e.g., a reward for finding a lost pet).
3. Express Contract: A contract where the terms are explicitly stated, either orally or in
writing.
4. Implied-in-Fact Contract: A contract formed by the actions or conduct of the parties,
rather than written or spoken words (e.g., ordering a meal at a restaurant).
5. Implied-in-Law (Quasi-Contract): A contract created by the law to avoid unjust
enrichment when no actual contract exists.
IV. Contract Performance and Breach
1. Performance: Fulfilling the obligations specified in the contract.
o Conditions Precedent: An event that must occur before performance is required
(e.g., receiving a loan before purchasing a house).
o Conditions Subsequent: An event that terminates the contract if it occurs (e.g.,
failing a background check in a job offer).
2. Breach of Contract: Occurs when one party fails to perform its obligations under the
contract.
o Material Breach: A significant failure to perform that allows the non-breaching
party to terminate the contract.
o Minor Breach: A small failure to perform that may not justify contract
termination, but allows for damages.
3. Defenses to Breach of Contract:
o Lack of Capacity: One party lacked the ability to contract (e.g., a minor).
o Mistake: A mutual misunderstanding about the terms or facts of the contract.
o Duress or Undue Influence: One party was forced or unfairly persuaded to enter
the contract.
o Fraud: One party intentionally misrepresented material facts to induce the other
party to contract.
o Impossibility: Performance becomes impossible due to unforeseen events (e.g.,
destruction of the subject matter).
V. Remedies for Breach of Contract
1. Damages: Financial compensation for loss caused by the breach.
o Compensatory Damages: Intended to put the injured party in the position they
would have been in if the contract had been performed.
o Consequential Damages: Damages resulting from the breach, not directly caused
by the breach, but foreseeable at the time the contract was made (e.g., lost
profits).
o Punitive Damages: Rare in contract law, intended to punish the breaching party
(usually only available for fraud or willful misconduct).
o Nominal Damages: A small amount awarded when a breach occurred but no
significant loss was suffered.
2. Specific Performance: A court order requiring the breaching party to perform their
contractual obligations, usually when the subject matter is unique (e.g., real estate or rare
items).
3. Rescission: The cancellation of the contract, returning the parties to their positions before
the contract was made.
4. Reformation: A court may alter a contract to reflect the true intentions of the parties
when there is a mistake or misunderstanding.
VI. Contract Modifications and Termination
1. Modification of Contracts: A contract can be modified by mutual agreement, and the
modification must meet the same basic elements as a new contract (offer, acceptance,
consideration).
o UCC Rule: Under the UCC, modifications to contracts for the sale of goods may
be made without consideration if made in good faith.
2. Termination of Contracts:
o By Agreement: Both parties agree to terminate the contract.
o By Performance: The contract is terminated upon full performance of
obligations.
o By Breach: A material breach allows the non-breaching party to terminate the
contract.
o By Impossibility or Impracticability: If performance becomes impossible or
excessively burdensome due to unforeseen circumstances, the contract may be
terminated.
VII. Uniform Commercial Code (UCC) and Contracts
1. UCC Article 2 - Sale of Goods: Governs contracts for the sale of goods.
o Goods: Defined as movable, tangible property.
o Offer and Acceptance Under the UCC: Acceptance under the UCC can be
made in any manner and by any reasonable means.
o Warranty: Implied warranties, including the implied warranty of merchantability
(goods are fit for their ordinary purpose) and implied warranty of fitness for a
particular purpose.
2. Differences between Common Law and UCC:
o The UCC is more flexible in terms of contract modifications and performance.
o The UCC allows for more open-ended contracts, focusing on the intent of the
parties rather than strict formalities.
VIII. Electronic Contracts and E-Commerce
E-Signatures: Electronic signatures are valid as long as they meet requirements under
the Electronic Signatures in Global and National Commerce Act (ESIGN).
Online Contracts: Terms and conditions in e-commerce agreements are governed by
contract principles, but the method of formation (e.g., clicking "I agree") must be clear
and unambiguous.
