Contract Law: Principles, Formation, and Defenses

Vocabulary flashcards defining fundamental concepts, doctrines, formation rules, and defenses in contract law.

Contract

A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

Promise

A manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

Lex Mercatoria

The law of merchants; a system of commercial customs created by merchants that served as a precursor to modern commercial law.

Equity

A branch of legal justice focused on flexibility and fairness that was developed through petitions to the Chancellor and the Court of Chancery to provide non-monetary remedies, such as injunctions or specific performance.

Uniform Commercial Code (UCC)

A statutory code developed by the American Law Institute to harmonize commercial laws across states, which courts are legally bound to follow in its areas of coverage.

Goods (under UCC Article 2)

Tangible items that are movable and identifiable at the time the contract is formed, explicitly excluding contracts for services.

Expectation Damages

The standard contract damages designed to give the nonbreaching party the benefit of the bargain by placing them in the position they would have occupied had the contract been fully performed.

Consideration

Something of legal value given in exchange for a promise, establishing a mutual commitment rooted in a bargained-for exchange.

Agreement

A manifestation of mutual assent determined by the outward, external expressions and conduct of the parties.

Bargain

An agreement to exchange promises, to exchange a promise for a performance, or to exchange performances.

Bilateral Contract

A contract in which each party gives a promise and receives a reciprocal promise in return.

Unilateral Contract

A contract where one party makes a promise that can be accepted solely by the other party's full completion of performance.

Objective Theory of Contracts

A principle holding that contract formation and mutual assent are judged by the outward, external words and actions of the parties from the perspective of a reasonable observer, rather than by unexpressed subjective intentions.

Misunderstanding

A failure of mutual assent that occurs when parties attach different but reasonable meanings to a material term, resulting in no contract unless one party knew or had reason to know the meaning intended by the other.

Offer

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

Discussions, inquiries, or solicitations occurring prior to contract formation where parties retain the freedom to walk away without incurring contractual liability.

Counteroffer

An offer made by an offeree relating to the same matter as the original offer and proposing a substituted bargain, which operates to terminate the offeree's power of acceptance over the original offer.

Option Contract

A secondary contract in which the offeror promises to hold an offer open and irrevocable for a specific duration in exchange for consideration provided by the offeree.

Merchant's Firm Offer

A signed, written assurance by a merchant under UCC Article 2 to keep an offer open without requiring consideration, irrevocable for the time stated or for a reasonable time not exceeding three months.

Part-Performance Doctrine (Unilateral Contracts)

The rule providing that once an offeree begins performance in response to an offer for a unilateral contract, an option contract is created that precludes the offeror from revoking.

Mirror-Image Rule

A common law rule requiring an acceptance to be an exact match to the terms of the offer, treating any variance or conditional acceptance as a rejection and counteroffer.

Knockout Rule

The majority rule under UCC 2-207 where conflicting terms in the parties' exchange of forms cancel each other out and are replaced by statutory UCC gap-fillers.

Mailbox Rule

The common law rule specifying that an acceptance is effective upon dispatch when properly addressed and posted, whereas offers, counteroffers, rejections, and revocations take effect only upon receipt.

Illusory Promise

An apparent promise that reserves to the promisor complete discretion to perform or refrain from performing, thereby failing to constitute consideration.

Promissory Estoppel

An equitable doctrine under Restatement (Second) of Contracts § 90 that enforces a promise without consideration if the promisor reasonably expected to induce reliance, the promisee reasonably and foreseeably relied on it to their detriment, and injustice can only be avoided by enforcement.

Promissory Restitution

A doctrine recognized under Restatement (Second) of Contracts § 86 that enforces a promise made in recognition of a material benefit previously received, to the extent necessary to prevent unjust enrichment and injustice.

Statute of Frauds

A statutory requirement establishing that certain categories of contracts are legally unenforceable unless supported by a written memorandum signed by the party against whom enforcement is sought.

MYLEGS

The mnemonic for contract categories traditionally subject to the Statute of Frauds: Marriage, contracts incapable of performance within one Year, transfers of an interest in Land, Executorship promises to pay debts of an estate personally, Goods priced at $500$ dollars or more, and Suretyship.

Suretyship

A contractual promise to guarantee and answer for the debt or legal obligation of another party.

Merchant's Confirmatory Memo

A UCC exception satisfying the Statute of Frauds where a written confirmation between merchants is sent within a reasonable time and binds the recipient unless objected to in writing within 10 days.

Mutual Mistake

A situation where both contracting parties share an erroneous belief about a basic assumption of fact at the time of contract formation that has a material effect on the agreed exchange, voidable by the adversely affected party unless they assumed the risk.

Conscious Ignorance

An assumption of risk where a contracting party enters an agreement aware that they possess limited knowledge regarding certain material facts but chooses to proceed regardless.

Scienter

The mental state of fraudulent intent or conscious knowledge of wrongdoing, satisfied when a party makes an assertion knowingly or recklessly with disregard for its truth.

Economic Duress

Coercion occurring when an improper threat or wrongful act causes severe financial distress, forcing an involuntary contract because the victim has no reasonable alternative.

Undue Influence

The unfair persuasion of an individual who is uniquely susceptible due to age, illness, or distress by a dominant party who exploits a position of power or confidential relationship.

Unconscionability

A contract defense preventing enforcement when an agreement exhibits both procedural flaws during the formation process and substantively oppressive or one-sided terms.