Contracts Law: Formation, Interpretation, Defenses, Performance, and Remedies

Comprehensive vocabulary flashcards covering the major concepts, doctrines, rules, and case law of contract formation, interpretation, defenses, breach, and remedies.

Objective Theory of Contract Formation

The legal doctrine establishing that a party is bound not by their secret, subjective intent, but by a reasonable interpretation of their outward words and conduct from the perspective of a hypothetical reasonable person.

Subjective Theory ("Meeting of the Minds")

A contract formation concept holding that the actual, internal intention of the parties, rather than their external conduct alone, determines whether legal obligations are created.

Ray v. William G. Eurice & Bros., Inc.

A foundational contract case establishing that, absent fraud, duress, or mutual mistake, a party with the capacity to understand a written document who signs it is bound by its terms under an objective standard, even if they were mistaken about its specifications.

Bilateral Contract

A contract formed by an exchange of mutual promises in which both parties commit to a future course of performance.

Unilateral Contract

A contract formed when one party makes an offer that can only be accepted by the offeree rendering a requested act or performance, rather than by promising to perform.

Offer (Restatement (Second) of Contracts § 24)

The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that their assent to that bargain is invited and will conclude it.

Preliminary Negotiations (Restatement (Second) of Contracts § 26)

Communications, advertisements, and price quotes that solicit or invite an offer rather than confer a power of acceptance, because the recipient knows or has reason to know the speaker requires a further manifestation of assent.

Mailbox Rule (Deposited Acceptance Rule)

The procedural rule stating that an acceptance made in an authorized or reasonable manner is legally effective upon dispatch, placing the risk of lost or delayed communication on the offeror.

Counteroffer

An offeree's response proposing a substituted bargain differing from the original proposal, which acts as a rejection that terminates the offeree's original power of acceptance.

Option Contract

A secondary, binding agreement in which an offeror promises to keep an underlying offer open and irrevocable for a specified duration, requiring independent consideration at common law.

Restatement (Second) of Contracts § 45

The rule providing that when an offeror invites acceptance by performance, the offeree's beginning or tender of performance creates an option contract, precluding the offeror from revoking the offer.

Consideration (Holmes Formula)

The bargained-for exchange requiring a reciprocal conventional inducement in which the promisor's promise induces the detriment, and the promisee's detriment induces the promise.

Past Consideration

An act, service, or detriment rendered prior to the making of a promise, which cannot serve as valid legal consideration because it was not exchanged for the promise at the time of agreement.

Moral Obligation

A purely ethical or conscientious duty that is generally unenforceable as consideration for an express promise, unless founded upon an antecedent legal obligation barred by positive law.

Material Benefit Rule

The exception to the past-consideration rule (articulated in Webb v. McGowin) holding that where a promisee confers a substantial, non-gratuitous physical or financial benefit directly on the promisor, a subsequent promise to pay is legally enforceable.

Illusory Promise

An apparent commitment that reserves complete discretion or optional performance to the promisor, destroying mutuality of obligation and failing to provide valid consideration.

Predominant Purpose Test

The legal test applied to mixed contracts of goods and services to determine whether UCC Article 2 or the common law governs, evaluating the contract language, the nature of the business, and the intrinsic value of the goods.

UCC § 2-207 ("Battle of the Forms")

The statutory framework under the Uniform Commercial Code governing conflicting standard business forms, eliminating the common-law mirror image rule and establishing rules for additional and different terms.

Knockout Rule

A UCC doctrine applied when terms in an acceptance directly contradict terms in the offer; both conflicting terms are expelled from the contract and replaced by statutory UCC gap-fillers.

Promissory Estoppel (Restatement (Second) of Contracts § 90)

An equitable doctrine enforcing a promise lacking consideration when the promisor reasonably expects to induce action or forbearance, the promisee reasonably relies to their substantial detriment, and injustice can only be avoided by enforcement.

Bailment

The delivery of personal property by a bailor to a bailee for a specific purpose under a contract, requiring the bailee to execute a duty of care and return or account for the property once the purpose is fulfilled.

Quasi-Contract (Implied-in-Law / Unjust Enrichment)

An equitable obligation imposed by law regardless of party assent to prevent unjust enrichment when one party knowingly confers a non-officious benefit that would be inequitable to retain without compensation.

Officious Intermeddler Doctrine

The rule denying restitution to a claimant who voluntarily confers an unsolicited benefit upon another without their knowledge, request, or emergency justification.

Statute of Frauds Analysis

The framework determining whether a contract falls within statutory writing requirements (such as land sales, contracts not performable within one year, or goods of $\$500$ or more), whether a signed writing exists, and whether an exception like part performance applies.

Unequivocally Referable Test

The evidentiary standard for the part-performance exception to the Statute of Frauds requiring that an outsider reasonably conclude an oral contract exists based solely on acts such as taking possession and erecting valuable, permanent improvements.

Contract Interpretation Process

The judicial analysis resolving conflicting meanings of contractual terms: first determining whether an ambiguity exists under a textualist or contextualist standard, and then resolving the ambiguity using objective or subjective approaches.

Textualist Approach (Four Corners Rule)

The formalist interpretation method providing that a judge determines ambiguity solely from the face of the contract without examining extrinsic evidence; extrinsic evidence is admitted only after patent ambiguity is established.

Contextualist Approach

The modern method of contract interpretation allowing a court to review all extrinsic evidence, preliminary negotiations, and surrounding commercial context to determine whether contractual language is reasonably susceptible to more than one meaning.

Reasonable Expectations Doctrine

A rule of construction applied primarily to standardized adhesion contracts holding that the objectively reasonable expectations of the adhering party will be enforced even if complex fine print negates them.

Parol Evidence Rule Framework

The doctrine governing when extrinsic evidence from prior or contemporaneous negotiations is admissible, requiring a three-step inquiry into agreement integration, the timing of the evidence, and whether it contradicts, supplements, or interprets the writing.

Trade Usage

A practice, method, or custom of dealing having such regularity of observance in a vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.

Implied Covenant of Good Faith and Fair Dealing

An implied duty inherent in every contract obligating both parties not to act in bad faith or with an interested motive to destroy or injure the other party's right to receive the fruits and benefits of the agreement.

UCC Warranties Framework

The statutory rules under UCC §§ 2-313, 2-314, and 2-315 defining express warranties, the implied warranty of merchantability, and the implied warranty of fitness for a particular purpose, along with rules for their exclusion under § 2-316.

Economic Duress

A contract defense rendering an agreement voidable when one party involuntarily assents due to an improper or wrongful coercive threat that leaves them with no reasonable alternative.

Undue Influence (Odorizzi Factors)

A defense based on excessive pressure exerted by a dominant party over an unduly susceptible party, evaluated using factors like inappropriate timing, unusual location, extreme insistence, and absence of independent advisers.

Fraud in the Inducement

A misrepresentation regarding underlying facts that intentionally leads a party to assent to a contract under false pretenses, rendering the resulting agreement voidable.

Fraud in the Execution

Deception concerning the actual character, nature, or contents of the writing being executed, resulting in a total absence of mutual assent and rendering the contract void from its inception.

Unconscionability (Restatement (Second) of Contracts § 208)

A defense permitting courts to refuse enforcement of a contract or term that is unconscionable at formation, requiring both procedural unconscionability (oppression or surprise) and substantive unconscionability (overly harsh, one-sided terms).

Contract Defenses and Remedies Flow

The remedial structure where most proven defenses render an agreement voidable, leading to judicial rescission to unwind the contract, restitution of returnable items, or damages as appropriate.

Mutual Mistake (Restatement (Second) of Contracts § 152)

An erroneous belief held by both parties at formation regarding a basic assumption of the contract that materially affects the agreed exchange, rendering the contract voidable unless the adversely affected party bears the risk under § 154.

Commercial Impracticability (Restatement (Second) of Contracts § 261)

A doctrine discharging contractual performance when an unforeseen post-formation supervening event occurs without the obligor's fault, the nonoccurrence of which was a basic assumption, making performance excessively difficult or expensive.

Frustration of Purpose (Restatement (Second) of Contracts § 265)

A doctrine discharging a party's duty when an unexpected post-formation event fundamentally destroys the principal mutually understood purpose of the contract, rendering the counter-performance virtually worthless.

Preexisting Duty Rule

The common-law rule providing that a promise to pay additional compensation for an act or service that the promisee is already legally or contractually obligated to perform lacks valid consideration.

Express Condition

A clear and unambiguous contractual event that must strictly occur before an obligor's duty of performance becomes due, the nonoccurrence of which discharges the duty rather than constituting a breach.

Disproportionate Forfeiture (Restatement (Second) of Contracts § 229)

An equitable doctrine permitting a court to excuse the nonoccurrence of an immaterial condition if strict enforcement would cause extreme denial of compensation, provided the condition was not a material part of the agreed exchange and the other party suffers no prejudice.

Material vs. Nonmaterial Breach

The distinction in contract performance where a total or partial material breach substantially impairs the value of the bargain and suspends or discharges duties, while a nonmaterial breach involves substantial performance that keeps the contract intact and limits relief to actual damages.

Anticipatory Repudiation Framework

The analytical process governing advance statements of nonperformance, evaluating whether an unequivocal refusal occurred, whether it was timely retracted before detrimental reliance or finality, or whether insecurity justifies a demand for assurances.

Adequate Assurance of Performance (UCC § 2-609)

The statutory right permitting an insecure party to suspend their own performance and demand written assurance of due performance when reasonable commercial grounds for insecurity arise; failure to respond within $30$ days constitutes repudiation.

Expectation Damages

The standard contract remedy designed to put the injured party in the position they would have occupied had the contract been fully performed, categorized into direct/general losses, consequential losses, and incidental losses minus costs avoided.