Key Legal Concepts in Contract Law

Statute of Frauds

A legal principle that requires types of contracts to be in writing to be enforceable.

-

Ex: Anna tries to enforce a verbal agreement to sell land, but the court says it must be in writing.

Collateral Promise

A promise made by one party to pay the debt / fulfill the obligation of another party if that party fails to do so.

-

Ex: Mary tells the bank she’ll pay her brother’s loan if he doesn’t, but only if she puts it in writing is it enforceable.

Discharge

When the parties are released from their contractual obligations.

-

Ex:Once both sides do what they agreed to, the contract comes to an end.

Performance

The fulfillment of contractual obligations by the parties involved.

-

Ex:Tom delivers the cakes as promised, so Sally pays him.

Substantial Performance

When a party fulfills most of their contractual obligations but with minor deviations that do not defeat the contract's purpose.

-

Ex:The painter finishes the job but misses a small spot, so the homeowner still pays most of the bill.

Anticipatory Repudiation

When one party indicates, before the performance is due, that they will not fulfill their contractual obligations.

-

Ex:Before the due date, the builder tells the homeowner he won’t finish the house.

Incidental Damages

Expenses incurred due to another party's breach.

-

Ex:After a supplier cancels, Jane pays extra to get parts from another vendor.

Consequential Damages

Foreseeable losses resulting indirectly from a breach.

-

Ex:A late delivery causes a shop to lose sales, so they sue for lost profits.

Liquidated Damages

Predetermined compensation for breach specified in contract.

-

Ex:The contract says the builder pays $100 per day if the project is late.

Mitigation of Damages

Duty to minimize losses from a breach.

-

Ex:When the tenant moves out early, the landlord quickly advertises the apartment to find a new renter.

Reformation of a Contract

Court modification of a contract to reflect true intentions of parties.

-

Ex:The court fixes a contract’s typo so it matches what both sides actually agreed on.

Breach (of Contract)

Failure to fulfill contractual obligations without a legal excuse.

-

Ex:Sarah doesn’t deliver the flowers she promised for the wedding.

Waiver of Breach

Voluntary relinquishment (or letting go) of a right to take action against another party's breach.

-

Ex:The landlord lets the tenant pay rent late without penalty this time.

Condition precedent

A condition in a contract that must be met before a party's promise becomes absolute.

-

Ex: Alice agrees to buy a house from Bob, but the contract states that the purchase is only valid if Alice secures a mortgage loan from a bank within 30 days.

Condition subsequent

A condition in a contract that operates to terminate a party's absolute promise to perform.

-

Ex: Emma is hired as a nurse, but the contract specifies that if she loses her medical license at any time during her employment, her job will be terminated.

Concurrent conditions

Conditions in a contract that must occur or be performed at the same time; they are mutually dependent.

-

Ex: David agrees to sell his car to Lisa for $10,000, with the understanding that both the payment and the car’s title transfer must happen at the same time

Compensatory Damages

Damages that compensate the non-breaching party for the loss of the bargain.

-

Ex: Sarah hires a contractor to renovate her kitchen. The contractor abandons the project halfway. Sarah hires a new contractor who charges more to finish the job. She sues the first contractor for the price difference.

Consequential Damages

Special damages that compensate for a loss that is not direct or immediate.

-

Ex:James contracts with a supplier to deliver materials for a product launch. The supplier breaches the contract, causing James to miss the launch and lose profits. He sues for those lost profits.

Punitive Damages

Damages assessed to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit.

-

Ex:A company intentionally and maliciously breachers a contract to ruin a competitor's business. The competitor sues for more than just losses–asking for damages to punish the offending company.

Nominal Damages

A small amount of money awarded to a plaintiff in a lawsuit to show he/she was right but suffered no substantial harm.

-

Ex: A small breach occurs in a service agreement that causes no actual financial harm, but one party sues just to prove a legal point.

Liquidated Damages

An exact amount of money a party will owe if it breaches a contract, in order to compensate the injured party for its losses.

-

Ex:A contract between two parties states that if either side breaches, they will owe $10,000 in damages. One party breaches, and the other enforces that clause.