CORE DOCTRINAL COURSE OVERVIEW
CONTRACTS
A contract is an agreement between two or more people or entities that is legally
enforceable.
In general, there are four types of contracts: bilateral (exchange of promises), unilateral
(exchange of an act for a promise), express (oral or written), and implied (formed by
conduct). There is also something known as a quasi-contract that is technically not a
contract at all but is “found” by the courts to avoid the unjust enrichment of one party.
Just about every legal question involving contracts boils down to one or more of the
following three basic questions:
1) Whether a legally enforceable contract has been formed;
2) Whether that contract has been performed or breached; and
3) What is the nature of the relief available to the injured party if breach has
occurred.
QUESTION 1: HAS A LEGALLY ENFORCEABLE CONTRACT BEEN
FORMED?
Every contract is an agreement, but not every agreement is a contract.
In order for an agreement to be a contract, the following four elements must exist:
1)
2)
3)
4)
Offer;
Acceptance;
Consideration; and
No defenses to its formation.
1: IS THERE AN OFFER?
In order for a communication to constitute an offer, it must be 1) an expression of a
commitment or promise to enter into a contract that is 2) definite and certain in its terms,
and 3) communicated to the offeree.
These elements distinguish an offer from preliminary negotiations or an invitation to
deal.
An offer may be terminated by an offeror’s revocation, an offeree’s rejection, or by
operation of law (death, insanity, destruction of the proposed contract’s subject matter or
supervening illegality).
2: IS THERE ACCEPTANCE?
A legally sufficient acceptance requires 1) an offeree with the authority to accept; 2) a
clear statement of acceptance; and 3) communication of acceptance (if the acceptance is
sent my mail or equivalent method of dispatch, and if it is properly addressed and
stamped, it is deemed effective the moment it is sent. This is known as the mailbox
rule).
An acceptance must mirror the offer. If it omits or adds terms, it is deemed a counteroffer and therefore constitutes a rejection of the original offer.
3: IS THERE CONSIDERATION?
Consideration is a bargained for exchange. It is that thing, act or forbearance
(omission) of value that is sought by the promisor in exchange for his promise, and that
is given by the promisee in exchange for that promise.
Token consideration and sham consideration are generally not sufficient.
All contracts must be mutual: consideration must exist on both sides of a contract. If
only one party is bound to perform, the promise is deemed illusory and will not be
enforced.
4: ARE THERE DEFENSES TO THE FORMATION OF THE CONTRACT?
Defenses to the formation of a contract are situations that render an otherwise valid
contract void, voidable or unenforceable. They include:
1) Absence of mutual assent (mutual, unilateral, transmission, intermediary, and latent
ambiguity mistakes);
2) Misrepresentation;
3) Illegality of Contract;
4) Lack of Capacity (minor, incompetent);
5) Statute of Frauds; and
6) Unconscionability.
Once it is determined that all the elements necessary for an agreement to be a contract
exist (offer, acceptance, consideration, no defenses), the next question concerns the
performance or breach of that contract.
QUESTION 2: HAS THE CONTRACT BEEN PERFORMED OR BREACHED?
Questions concerning performance require determining two things:
1) Is there an absolute and present duty to perform and 2) has the duty to perform been
discharged?
When a duty to perform is absolute and has not been discharged, then failure to fulfill this
duty constitutes a breach of contract.
A duty to perform becomes absolute when there are no conditions placed upon
performance or when all such conditions have been performed or excused.
A condition is an event that affects the duty to perform. For example, a party may
condition his promise to supply two cubic tons of coffee to Starbucks on his farm’s
producing three cubic tons that year.
Conditions can be precedent, concurrent or subsequent to the duty to perform.
Once the conditions have been either performed or excused, the duty to perform becomes
absolute.
Once it is determined that a duty is absolute, that duty must be discharged.
It can be discharged in the following ways:
1) Performance;
2) Discharge by Illegality;
3) Discharge by Impossibility;
4) Discharge by Impracticability;
5) Discharge by Frustration;
6) Discharge by Condition Subsequent;
7) Discharge by Rescission; and
8) Discharge by Accord and Satisfaction
among others.
QUESTION 3: IN THE EVENT OF BREACH, WHAT IS THE RELIEF
AVAILABLE TO THE INJURED PARTY?
Where there exists an absolute duty to perform that has not been discharged, the nonperforming party is deemed to have breached the contract.
The question then becomes whether the breach is material or minor.
A breach is material if the non-breaching party does not receive the substantial
benefit of the bargain. If there is a material breach, the non-breaching party no longer
needs to perform under the contract.
If there is a minor breach, the non-breaching party may be able to recover
damages, but must still perform under the contract.
Remedies for breach:
1. Damages (compensatory, nominal, punitive, and liquidated)
Compensatory damages: “standard measure” (cost of substitute) and
consequential (what a reasonable person could foresee would result from a breach)
Liquidated damages: provision valid if damages difficult to ascertain when
contract is entered into, and amount is a reasonable forecast of compensatory
damages.
There is a duty to mitigate damages on the part of the non-breaching party.
2. Specific Performance (available for land and goods but not for services.)
3. Rescission and Restitution
4. Relief in Quasi-Contract
PROVING THE EXISTENCE AND TERMS OF A CONTRACT IN COURT
In all this, we must keep in mind the rules of contract construction and the parole
evidence rule.
1.
2.
A contract is construed as a whole, and according to the ordinary meaning
of words.
All evidence of prior or contemporaneous negotiations and agreements that
contradict or modify the contract is inadmissible as evidence if the written
contract is intended as a complete and final expression of the parties’ intent.