Contract Law Articles

Cheat Sheet / Updated 02-23-2022

To be successful in contract law, you need to know the rules and be able to analyze fact situations in the light of those rules. This Cheat Sheet introduces some of the most important concepts in contract law — such as contract formation, promises enforceable because of reliance and restitution, the statute of frauds, the parol evidence rule, and damages for breach of contract — and boils them down for easy reference.

Article / Updated 05-11-2021

Negotiating deals in the business world requires a fundamental understanding of contract law. For starters, in the United States, unless you have a specific arrangement to the contrary, no deal is closed until the parties reach an agreement on all the points under negotiation. As long as some point is under discussion, the deal remains open and subject to adjustment by either party. Even if an agreement on various pieces of the deal seems to be in place, the deal isn't final until both parties reach an agreement on all points. Backing off a previously agreed-to point doesn't happen often, but it does happen, even to experienced negotiators. To have an enforceable contract, you need agreement on four elements: Description of the product or service to be delivered Cost of the product or service Term of the agreement Names of the parties responsible for delivering elements of the agreement Here are some specifics of U.S. contract law that apply to most negotiations: Offers and counteroffers: When a party makes an offer and you make a counteroffer, you legally rejected the initial offer and put a new offer on the table. The other party may allow you to accept a previous offer but is not bound to do so. After you put a counteroffer on the table, you have no legal right to demand that an old offer stay on the table. Written versus oral contracts: Contrary to popular belief, oral agreements are generally enforceable. The law requires a few types of contracts to be in writing, including those relating to employment and the sale of land and contracts extending for more than a year; but generally, oral contracts are valid but tough to prove if you get into a dispute unless you have something other than your own memory to establish the agreed-to terms. Pre-contract legal protection: If one or both parties begin to carry out the terms of an agreement before a fully enforceable contract is signed, the courts usually support acts performed in good faith. That is, the party who performed a service or provided goods typically receives the fair market value for that service or product even if a contract is not signed. Check out Contract Law For Dummies by Scott J. Burnham (Wiley) for much more on this topic.

Article / Updated 05-05-2021

According to the rule of the expectancy, a non-breaching party is entitled to damages that put the non-breaching party in the position it would’ve been in had the contract been fully performed. To use the rule of the expectancy to calculate damages for breach of contract, take the following steps: Describe what the non-breaching party would’ve had if the contract had been performed. Describe where the non-breaching party stands now. Figure out what it would take to bring the non-breaching party from where she is now to where she would’ve been had both parties performed.

Article / Updated 05-05-2021

When an unforeseen event makes performance of a contract obligation impracticable (impossible or unrealistic), the seller may claim that its nonperformance is excused. To analyze a claim of impracticability, determine whether all of the following apply: The event occurred after the contract was made. Performance became impracticable because of the event. The nonoccurrence of the event was a basic assumption of the contract. The party seeking to be discharged carried the risk of the event’s occurring.

Article / Updated 05-05-2021

Parties frequently modify (change the terms of) the contract after they make it. Technically, a contract modification is a new contract requiring consideration. When one party promises to give something up and the other doesn’t, courts sometimes invoke the pre-existing duty rule to determine whether the modification is enforceable. However, the pre-existing duty rule has several exceptions, including the following: The UCC says in § 2-209(1) that consideration is not needed for a modification. The modern rule found in Restatement § 89 says that consideration is not needed if the modification is fair and equitable in light of changed circumstances. For an accord (an agreement to settle a debt by paying less), consideration is needed. Consideration is often found if the debt is unliquidated or disputed.

Article / Updated 05-05-2021

Every contract is incomplete, and the courts find that some contract terms are implied even if the parties do not express them. These implied terms include the following: Terms supplied by course of performance, course of dealing, and trade usage The obligation of good faith A standard of quality, called a warranty in the Uniform Commercial Code (UCC)

Article / Updated 05-04-2021

A third party is a person who’s not a party to the contract. Common law recognizes three significant third parties: Third-party beneficiary: If the parties to the contract intend a third party to be able to sue for enforcement of a promise made in the contract, then that that person is a third-party beneficiary. Assignee: If a party transfers a right under the contract to a third party, that person is an assignee. The assignor (the one who assigned the rights) drops out of the picture and the obligor (the one who is obligated to perform) must perform for the assignee. Delegate: If a party delegates a duty under the contract to a third party, that person is a delegate. The delegate must now perform the contract, but the delegator (the one who was obligated under the contract to perform) remains liable for performance and breach.

Article / Updated 05-04-2021

A contract defense is any legal challenge to a contract’s enforceability. Following are common contract defenses: Illegality: The agreement itself is illegal or violates public policy. Unconscionability: The agreement is so one-sided that it shocks the conscience of the court. Mental incapacity or incompetence: One of the parties had a mental illness or incapacity at the time of contract formation. Party was a minor: A party was not of legal age (younger than 18 years). Fraud: A party made an affirmative misrepresentation or failed to disclose something that he or she was required to disclose. Duress: One party made an unlawful threat to the other, giving that person no reasonable alternative but to enter into the contract. Undue influence: A dominant party used an inappropriate method of persuasion to convince a weaker or more vulnerable party to enter into a contract against his better judgment. Mistake: The parties entered into the agreement with a belief that was not in accord with the facts, and the belief goes to a basic assumption of the contract and is material.

Article / Updated 03-26-2016

In contract law, a condition is an event that must occur before some performance is due. Parties may claim that they aren’t in breach of contract because the condition that had to occur before they had to perform hasn’t occurred. A condition can be express or implied: Express: An express condition, which usually uses words like if, is stated in the contract. Implied: An implied condition is found by the court. The most common implied condition is the performance of a party. Thus, a party may claim that it doesn’t have to perform because the other party didn’t perform.

Article / Updated 03-26-2016

A contract is a legally enforceable exchange of promises. Contract formation requires the following three essential ingredients: Offer: The offeror promises the offeree something in exchange for the offeree’s promise to do or not to do something. Acceptance: The offeree gives the offeror whatever was requested, such as a promise to do or not to do something. Consideration: The consideration is whatever each party brings to the table in the bargained-for exchange.