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Understanding Contract Law: Key Concepts and Cases

Explore essential elements of contract law including agreement, consideration, capacity, legality, and discharge by performance or agreement. Learn about key principles through real-life examples and legal cases.

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Understanding Contract Law: Key Concepts and Cases

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  1. Contract Law Jody Blanke Distinguished Professor of Computer Science and Law Mercer University, Atlanta

  2. Contract Law As Private Law • Willing parties can agree to do most anything • Freedom of contract • “Meeting of the minds”

  3. Private Law • Contract between Major League Baseball and the Players Association - Collective Bargaining Agreement (311 page PDF file) • “free agent” • “salary cap” • “luxury tax” • NHL (a league that used to play ice hockey in Canada and the U.S.)

  4. Uniform Commercial Code • Poster child of uniform laws • Adopted in 49½ states (La. has adopted parts of it) • Very successful • Facilitates the ease of doing everyday business

  5. Basic Requirements • An agreement between the parties • Consideration • Capacity • Legality

  6. Agreement – The Offer • Offeror must have intention to be bound by offer • e.g., kick the tire • Terms must be reasonably definite and certain • can be written, oral or implied • can come from prior dealings or usage of trade • Offer must be communicated to offeree • e.g., reward for lost dog

  7. Figurative “Death” of an Offer • “Natural causes” – lapse of time • “Suicide” – revocation • “Murder” – rejection • Counteroffer = rejection + offer • “Execution” – by operation of law • change in law terminates offer

  8. Literal Death of An Offer • The offeror dies • The offeree dies • Destruction of subject matter

  9. Acceptance • At common law – “mirror image rule” • UCC – more relaxed (and reasonable) • “battle of the forms” • Generally effective upon receipt • exception – “mailbox rule”

  10. Bilateral and Unilateral Contracts • Bilateral – a promise for a promise • e.g., Joe promises to paint Bill’s house and Bill promises to pay Joe $1000 • Unilateral – a promise for an act • e.g., Susan promises to pay $500 to the first person who scales the outside of the Business and Education Building • performance of the act is acceptance

  11. Consideration • Each party must provide something of value • Money, property, services, forebearance • e.g.,Hamer v. Sidway – the “rich uncle” case • Courts will not examine the adequacy of the consideration

  12. Capacity • Age – law protects minors • Voidable contract • Exception for necessaries • Mental competency • Void contract • Voidable contract • Intoxication

  13. Legality • Contracts must have a legal purpose • cannot take out a “contract” for that noisy neighbor • cannot purchase a gram of cocaine • gambling? • e.g.,Durado Beach Hotel v. Jernigan

  14. Genuiness of Assent • Duress – “gun to the head” • Undue Influence • Mistake • Unilateral – generally does not excuse performance • exception – if nonmistaken party knew of the mistake • Mutual – generally does excuse performance • no meeting of the minds

  15. Third-Party Rights • Each party receives certain rights or benefits in a contract • Each party undertakes certain duties or obligations • Generally, rights can be assigned to third parties • Generally, duties can be delegated to third parties • exception – when performance depends upon personal skills

  16. Statute of Frauds • “An oral contract is as legally valid as a written contract unless the law requires it to be in writing” • “…as good as…” if executed before 100 clergy people of all faiths willing to come to court and testify • Five Most Common Types of Contracts Covered by S/F • Contract to transfer an interest in real property • Contract that cannot be performed within 1 year • Contract to pay the debts of another • Contract made in contemplation of marriage • dowry agreement • prenuptial agreement • Contract for the sale of goods greater than $500 • UCC drafters recommend increase to $5,000

  17. Parol Evidence Rule • Court will not permit evidence of prior or contemporaneous oral statements if there is a complete written agreement • exception – ambiguities • Morals of the story • read the contract – get it in writing

  18. Integration Clause • “I have read the above agreement and understand that it represents the entire agreement between the parties.” • Morals of the story • read the contract – get it in writing

  19. Standard Form Contracts • Read them • Modify them • and get written approval from authorized representative • Use attachments if necessary • e.g., letters, memos, specifications • Ambiguities interpreted against the drafter

  20. Discharge of Contract • Discharge by performance • Discharge by agreement • Discharge by impossibility

  21. Discharge by Agreement • Mutual rescission • key word – “mutual” • Novation • new contract • Accord and satisfaction

  22. Discharge by Impossibility • Objective impossibility • e.g., the car got hit by a meteorite • Subjective impossibility • “It’s impossible for me to go through with that contract” • Performance may be discharged by the doctrine of commercial impracticability • e.g., school district milk case • key – was event “reasonably foreseeable?”

  23. Remedies – Money Damages • Compensatory damages • makes one “whole” under the contract • provides the “benefit of the bargain” • measure of damages is usually the difference between the value of the contract and the market value of what was actually received

  24. Remedies – Money Damages • Consequential damages • must be reasonably foreseeable • e.g.,Hadley v. Baxendale • often disclaimed by contract

  25. Mitigation of Damages • Nonbreaching party has duty to lessen the amount of damages • e.g., wrongful discharge • Anticipatory repudiation • Duty to “cover” • UCC § 2-712(2) – The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages

  26. Liquidated Damages • Actual amount of damages must be difficult to calculate • Amount specified must be a reasonable estimate of those damages • Must not be a penalty

  27. Equitable Remedies • Injunction • Quasi-Contract (Quantum Meruit) • Specific Performance • generally available for unique goods or property • not appropriate for personal services

  28. Choice of Law/Forum • Written contracts often contain choice of law and choice of forum clauses • These will generally be enforced as long as there is a connection to the state

  29. Promissory Estoppel • “Last ditch” remedy • Three requirements (Restatement of Contracts § 90) • A promise reasonably expected to induce action • Action by the promisee in justifiable reliance on the promise • Injustice can be avoided only by enforcing the promise • e.g.,Hoffman v. Red Owl Stores

  30. Unconscionability • “Last ditch” remedy • UCC remedy • The court “would not be able to sleep at night” • The court can fix an unconscionable contract • it can throw out the entire contract • it can throw out the unconscionable part of the contract • It can modify the contract to make it not unconscionable • Consumer remedy • e.g.,Frostifresh v. Reynoso • e.g.,PEPCO v. Westinghouse

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