Legal Contracts and Contract Law Principles: Key Concepts and Rules

Mutual assent

An agreement between parties to enter into a contract.

Consideration

Something of value exchanged between parties in a contract.

Capacity

The legal ability of parties to enter into a contract.

Legality

The requirement that the contract's purpose must be lawful.

Promissory estoppel

A promise enforceable without consideration if: 1. Promisor should reasonably expect it to induce reliance. 2. Promisee actually relies to their detriment. 3. Enforcement is necessary to avoid injustice.

Quasi-contract (restitution)

An obligation imposed by law to prevent unjust enrichment when no contract exists. Elements: 1. A benefit was conferred on defendant. 2. Defendant knew/appreciated the benefit. 3. It would be unjust enrichment to retain without paying.

Essentials of a valid offer

Communication, intent, definiteness.

Termination of an offer

Seven ways: Lapse of time, revocation, rejection, counteroffer, death/incompetency, destruction of subject matter, subsequent illegality.

Limits on revocation

Five limits: Option contract, firm offer (UCC), statutory irrevocability, unilateral contract where performance has begun, promissory estoppel.

Mirror image rule

Under common law, acceptance must be positive, unequivocal, and mirror the offer exactly; otherwise it is a counteroffer.

UCC rule on variant acceptances (2-207)

A definite acceptance can still form a contract even with additional/different terms, unless those terms materially alter or are objected to.

Mailbox rule

Acceptance is effective upon dispatch, unless: 1. Offer specifies otherwise, or 2. A rejection was sent first (then whichever arrives first controls).

Objective standard of intent

Judged from the perspective of a reasonable person, not secret subjective intent.

Bilateral contract

Promise for a promise (acceptance is a promise).

Unilateral contract

Promise for an act (acceptance occurs upon performance).

Categories of duress

Three categories: Physical compulsion → contract is void; Emotional duress → voidable by victim; Economic/financial duress → voidable by victim.

Undue influence

Unfair persuasion by a dominant party in a confidential/fiduciary relationship that overcomes the weaker party's free will → contract is voidable.

Fraud in the execution

Misrepresentation about the very nature of the contract (e.g., signing something thinking it's a receipt) → Contract is void.

Fraud in the inducement

False representation of material fact intended to induce agreement → Contract is voidable.

Elements of fraud in the inducement

1. False representation of a material fact. 2. Knowledge of falsity (scienter). 3. Intent to deceive. 4. Justifiable reliance by the other party.

Nonfraudulent misrepresentation

Two types: Negligent misrepresentation → false statement without due care → voidable if material and relied upon; Innocent misrepresentation → false statement made in good faith → voidable if material and relied upon.

Types of mistake

Two types: Mutual mistake of fact → contract voidable by adversely affected party; Unilateral mistake → contract enforceable, unless other party knew/should have known, or enforcement would be unconscionable.

Elements of consideration

Legal sufficiency (benefit/detriment) and bargained-for exchange.

Legal detriment

Doing or promising to do something not legally obligated, or refraining from something you had a legal right to do.

Legal benefit

Receiving something one had no legal right to before.

Illusory promise

A promise imposing no real obligation (e.g., "as much as I want"). Not valid consideration.

Output contracts

Contracts that avoid being illusory under the UCC.

Requirements contracts

Contracts that avoid being illusory under the UCC.

Exclusive dealing contracts

Contracts that avoid being illusory under the UCC.

Conditional promise

A promise dependent on an event; valid unless promisor knows event cannot occur.

Preexisting public duties

Promises to perform what one is already legally obligated to do are not consideration.

Preexisting contractual duties

Common law requires modifications to have new consideration; UCC allows modifications in good faith without new consideration.

Past consideration

Past actions cannot serve as consideration because they were not bargained for.

Undisputed (liquidated) debts

Promise to accept less than full amount is not consideration; creditor can still demand balance.

Disputed (unliquidated) debts

Settlement for less is valid consideration since both sides give up something.

Promises enforceable without consideration

Includes promissory estoppel, promise to pay debts barred by statute of limitations, promise to pay debts discharged in bankruptcy, UCC exceptions.

General rule of illegality

Illegal contracts are unenforceable; courts provide no remedy unless exceptions apply.

Types of licensing statutes

Regulatory protects public and makes contract unenforceable without license; Revenue raises money and keeps contract enforceable.

Illegal contracts under statutes

Includes gambling/wagering, usury, blue laws, unlicensed professional contracts.

Illegal contracts contrary to public policy

Includes covenants not to compete, exculpatory clauses, contracts corrupting officials, tort contracts, unconscionable contracts.

Types of unconscionability

Procedural (unfair process) and substantive (unfair terms); courts usually require some of both.

Rule on partial illegality

Court may refuse to enforce entire contract or sever illegal portion and enforce the rest.

Exceptions allowing recovery despite illegality

Includes withdrawal before performance, protected by statute, not equally at fault, excusable ignorance, partial illegality, restitution to prevent unjust enrichment.

Effect of an illegal marriage contract

Marriage is void; innocent spouse may recover restitution under exceptions.

Enforceability of covenants not to compete

Must be reasonable in time, geographic scope, and activity.

Enforceability of exculpatory clauses

Only for ordinary negligence; unenforceable if they excuse reckless/intentional conduct or apply to essential services.

Requirements of a valid contract

1. Mutual Assent; 2. Consideration; 3. Capacity; 4. Legality.

Elements of promissory estoppel

1. A promise that the promisor should reasonably expect will induce reliance; 2. The promisee actually relies on the promise and suffers a detriment; 3. Injustice can only be avoided by enforcing the promise.

Elements of quasi-contract (restitution)

1. A benefit was conferred on the defendant; 2. The defendant had knowledge or appreciation of the benefit.

Unjust enrichment

It would be unjust enrichment for the defendant to keep the benefit without compensating the plaintiff.

Requirements of valid acceptance

Must be a positive, unequivocal expression of assent. Common law: acceptance must mirror the offer exactly (mirror image rule) — any changes make it a counteroffer. UCC (2-207): allows acceptance with additional/different terms; contract still forms unless changes materially alter it or are objected to.

Acceptance takes effect

General rule (Mailbox Rule): acceptance is effective upon dispatch (when sent). Stipulated provisions: if the offer requires a specific method of acceptance, that must be followed. Authorized means: unless specified, acceptance may be made in any reasonable manner. Unauthorized means: effective only when received, if timely. After rejection: whichever communication (acceptance or rejection) reaches the offeror first controls.

Standard for intent in mutual assent

The objective standard — what a reasonable person would believe based on words or conduct. Not subjective (hidden thoughts or intentions don't matter).

Bilateral contracts

Promise for a promise — acceptance occurs when both parties exchange promises.

Unilateral contracts

Promise for an act — acceptance occurs only when the requested act is performed.

Elements of undue influence

Unfair persuasion of a party who is under the domination of another, or in a confidential/fiduciary relationship (e.g., parent-child, guardian-ward, attorney-client, doctor-patient). The weaker party's free will is overborne. Contract is voidable by the influenced party.

False representation of a material fact

An untrue statement regarding a significant fact that is essential to the contract.

Scienter

Knowledge of the falsity of a statement made.

Intent to deceive

The purpose behind a false representation to induce reliance on it.

Justifiable reliance

The reasonable trust placed by a party on a misrepresentation.

Negligent misrepresentation

A false statement made without due care in determining its truth, making the contract voidable if material and relied upon.

Innocent misrepresentation

A false statement made with a belief in its truth, using due care, making the contract voidable if material and relied upon.

Mutual mistake

A situation where both parties share the same mistaken belief about a basic assumption of the contract, making it voidable by the adversely affected party.

Unilateral mistake

A situation where only one party is mistaken; generally, the contract is enforceable unless the non-mistaken party knew or should have known of the mistake or enforcement would be unconscionable.

Legal sufficiency

A promise, act, or forbearance that involves either a legal benefit to the promisor or a legal detriment to the promisee.

Bargained-for exchange

The performance or return promise must be sought by the promisor in exchange for their promise, and given by the promisee in exchange for that promise.

Preexisting public duty

A duty that is already legally obligated, which does not constitute valid consideration.

Preexisting contractual duty

A duty that one is already contractually bound to perform, which does not constitute valid consideration.

Promise enforceable without consideration

Situations include promissory estoppel, promise to pay debt barred by statute of limitations, promise to pay debt discharged in bankruptcy, and UCC exceptions.

Contract VOID

A contract that is never enforceable due to reasons such as physical duress or fraud in the execution.

Illegality

Contract for criminal activity.

Void

No legal effect from the start.

Voidable

Valid until rescinded by one party.

Duress

Improper threats (economic, emotional).

Mutual mistake of fact

Basic assumption wrong.

Capacity issues

Minors, intoxicated, or mentally incompetent.

Enforceable

Even if challenged, requires valid consideration.

Valid consideration

Legal sufficiency + bargained-for exchange.

Conditional promises

Valid if event could occur.

UCC modifications

In good faith, no new consideration needed.

Disputed debt settlement

Good faith compromise = consideration.

Illegal contracts

Contracts with illegal objectives are unenforceable.

Regulatory license

Ensures competence/protects public; contracts with unlicensed person are unenforceable.

Revenue license

Purpose is raising money; contracts are enforceable even if party is unlicensed.

Covenants not to compete

Enforceable only if reasonable in time, geography, and scope.

Exculpatory clauses

Unenforceable if they excuse reckless/intentional harm or affect essential services.

Procedural unconscionability

Unfair bargaining process (fine print, deception, unequal power).

Substantive unconscionability

Unfair contract terms (grossly one-sided, oppressive).

Partial illegality

Courts may refuse to enforce the entire contract or sever the illegal portion.

Exceptions to recovery despite illegality

Withdrawal before performance, protected by statute, not equally at fault, excusable ignorance, partial illegality, restitution allowed.

Illegal marriage contract

Marriage is void; innocent spouse may recover under exceptions.

Covenants not to compete enforcement

Enforceable if narrow in time, geographic scope, and activity.

Exculpatory clauses enforcement

Valid for ordinary negligence, unenforceable if they excuse reckless/intentional conduct or involve essential services.