Comprehensive Contract Law: Elements, Types, and Remedies

Contract

a set of promises constituting an agreement between parties, giving each a legal duty to the other and the right to seek a remedy for the breach of the promises or duties. An agreement that can be enforced in court.

The objective theory of contracts

the view that contracting parties shall be bound only by terms that can be objectively inferred from promises made.

Freedom of contract

The laws recognized everyone's ability to enter freely into contractual arrangements. A freedom protected by the U.S constitution, article I, section 10.

Bilateral contract

a type of contract that arises when a promise is given in exchange for a return promise. Promise for promise.

Unilateral contract

a contract that results when an offer can be accepted only by the offeree's performance. Promise for performance.

Requirements of a valid contract

Agreement, offer, acceptance, consideration, capacity, legality, form (writing), consider mutual assent issues.

Agreement

an agreement to form a contract includes an offer and an acceptance, one party must offer to enter into a legal agreement, and another party must accept the terms to the offer.

Offer

a promise or commitment to perform or refrain from performing some specified act in the future. Serious present manifestation of intent to contract.

Acceptance

the act of voluntarily agreeing, through words or conduct, to the terms of an offer, thereby creating a contract.

Remedy

Consideration

any promises made by the parties must be supported by legally sufficient and bargained-for consideration. (something of value received or promised to convince a person to make a deal)

Contractual capacity

both parties entering into the contract must have the contractual capacity to do so; the law must recognize them as possessing characteristics that qualify them as competent parties.

Legality

the contract's purpose must be to accomplish some goal that is legal and not against public policy.

Voluntary consent/genuineness of assent

the apparent consent of both parties must be genuine. For example, if a contract was formed as a result of fraud, mistake, or duress, the contract may not be enforceable.

Form (writing)

the contract must be in whatever form the law requires; for example some contracts must be in writing to be enforceable.

Defense to the enforceability of a contract

Voluntary consent. The consent of both parties must be voluntary. Lack of capacity. Form. The contract must be in whatever form the law requires.

Requirements of a valid offer

1. There must be a serious, objective intention by the offeror. 2. The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract. 3. The offer must be communicated to the offeree.

What is not an offer

offers made in obvious anger, jest, or undue excitement. An expression of opinion. A statement of intention to do something in the future. A request or invitation to negotiate. Advertisements, catalogues, and circulars. Auctions.

Termination of offers

An effective offer gives the power to transform into a binding legal contract by acceptance. This power of acceptance doesn't continue forever. It can be terminated by either the action of the parties or operation of law.

Counter offer

an offeree's response to an offer in which the offeree rejects the original offer and at the same time makes a new offer.

Revocation

the withdrawal of a contract offer by the offeror; unless an offer is irrevocable, it can be revoked at any time prior to acceptance without liability.

Option contract

is created when one party provides consideration in exchange for the offeror's promise to hold an offer open for a specified period of time.

Irrevocable offer

Mirror image rule

a common law rule that requires that the terms of the offeree's acceptance adhere exactly to the terms of the offeror's offer for a valid contract to be formed

Mailbox rule

a common law rule that acceptance takes effect, and thus completes formation of the contract, at the time the offeree sends or delivers the acceptance via the communication mode expressly or impliedly authorized by the offeror.

Legally sufficient value

consideration must be something of value in the eyes of the law. The "something of legally sufficient value" may consist of any of the following: A promise to do something that one has no prior legal duty to do. The performance of an action that one is otherwise not obligated to undertake (such as providing accounting services). The refraining from an action that one has a legal right to undertake (a forbearance)

Bargained for exchange

The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties. The item of value must be given or promised by the promisor in return for the promisee's promise or performance. This element of bargained-for exchange distinguishes contracts from gifts.

Adequacy of consideration

concerns the fairness of the bargain. Courts typically do not question the adequacy of consideration based solely on the comparative value of the things exchanged. Under the doctrine of freedom of contract, courts leave it up to the parties to decide what something is worth, and parties are usually free to bargain as they wish. A large disparity in the amount or value of the consideration exchanged may raise a red flag for a court to look more closely at the bargain.

Agreements that lack consideration

Pre-existing duty

a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration.

Past Consideration

Promises made in return for actions or events that have already taken place are unenforceable.

Illusory Promises

If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory.

Promissory estoppel

a doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies. Such a promise is binding if justice will be better served by the enforcement of the promise.

Intoxication

A contract entered into by an intoxicated person can be either voidable or valid. If the person was sufficiently intoxicated to lack mental capacity and the other party had reason to know it, then the transaction may be voidable at the option of the intoxicated person, even if the intoxication was purely voluntary.

Minors

Mental incompetence

Contracts made by mentally incompetent persons can be void, voidable, or valid. A contract entered into by a mentally ill person who has not been declared legally incompetent may also be valid if the person had capacity at the time the contract was formed.

Contrary to public policy

not enforceable because of the negative impact they would have on society. (ex: restrain trade/anti competitive).

Unconscionable contracts

bargains so oppressive that the courts relieve innocent parties of part or all of their duties. Procedural unconscionability often involves inconspicuous print, unintelligible language or the lack of an opportunity to read the contract or ask questions about its meaning. Substantive unconscionability occurs when contracts, or portions of contracts, are oppressive or overly harsh.

Covenant not to compete

a contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographical area.

Lack of capacity

Mistake: Unilateral

occurs when only one party is mistaken as to a material fact.

Bilateral (Mutual)

Occurs when both parties to a contract are mistaken about the same material fact.

Fraudulent misrepresentation

Misrepresentation that is consciously false and is intended to mislead another.

Undue influence

Arises in relationships in which one party can greatly influence another party, thus overcoming the party's free will.

Duress

Forcing a party to enter into a contract because of fear created by threats.

Writing requirement

Contracts that involve interests of land, cannot by their terms be performed within one year, collateral contracts, promises made in consideration of marriage, or the sale of goods priced at $500 or more.

Statute of frauds

State statute that requires certain types of contracts to be in writing to be enforceable.

Partial Performance

When a contract has been partially performed and the parties cannot be returned to their positions prior to the contract's formation, a court may grant specific performance.

Admissions

If a party against whom enforcement of an oral contract is sought admits under oath that a contract for sale was made, the contract will be enforceable.

Contract discharge

The termination of an obligation; in contract law, discharge occurs when the parties have fully performed their contractual obligations or when events, conduct of the parties, or operation of law releases the parties from performance.

Condition precedent

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

Breach

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

Substantial performance (minor breach)

Did enough/majority; if one party's performance is substantial, the other party's duty to perform remains absolute.

Material breach

Breach of contract is the nonperformance of a contractual duty; a breach is material when performance is not at least substantial.

Discharge by operation of law

Contractual duties may be discharged due to material alteration of the contract, statute of limitations, bankruptcy, and impossibility of performance.

Impossibility

A party to a contract is relieved of the duty to perform when performance becomes objectively impossible or totally impracticable.

Commercial impracticability

Performance becomes much more difficult or costly due to forces that neither party could have controlled or foreseen at the time the contract was formed.

Compensatory Damages

Compensate the nonbreaching party for the loss of the bargain.

Consequential Damages

Foreseeable damages that result from a party's breach of contract.

Punitive Damages

Damages generally not awarded in lawsuits for breach of contract because they are designed to punish the wrongdoer and set an example to deter similar conduct in the future.

Nominal Damages

When no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award nominal damages to the innocent party.

Mitigation of damages

The requirement that a plaintiff do whatever is reasonable to minimize the damages caused by the defendant's breach of contract.

Liquidated damages

An amount, stipulated in a contract, that the parties to the contract believe to be a reasonable estimation of the damages that will occur in the event of a breach.

Specific performance

An equitable remedy in which a court orders the parties to perform as promised in the contract; this remedy normally is granted only when the legal remedy (monetary damages) is inadequate.