Contracts

Core MBE-tested Contracts rules, each with a primary-source citation. Open in rapid-review mode →

• Contract DefinedA contract is a legally enforceable promise formed by mutual assent and consideration.
• Offer RequirementsAn offer is a manifestation of intent to be bound with definite terms communicated to an identifiable offeree.
• Termination of OfferOffers terminate by revocation, rejection, lapse, death, or destruction of subject matter.
• Option ContractsAn option is irrevocable when supported by consideration for a promise to keep the offer open.
• Firm Offers (UCC)A merchant’s signed writing assuring it will remain open is irrevocable for the period stated, up to 3 months.
• Acceptance: Mirror RuleUnder common law, acceptance must mirror the offer; additional or different terms are counteroffers.
• Acceptance by PerformanceUnilateral contracts are accepted only by complete performance.
• Acceptance by PromiseBilateral contracts are accepted by a return promise or beginning performance.
• Mailbox RuleAcceptance is effective upon dispatch unless otherwise specified.
• UCC Battle of the FormsUnder UCC 2-207, additional terms may become part of the contract unless objected to or material.
• Consideration DefinedConsideration requires bargained-for legal detriment; gifts and past acts do not qualify.
• Promissory EstoppelPromissory estoppel enforces promises that foreseeably induce reliance and where injustice can be avoided only by…
• Preexisting Duty RuleA promise to perform an existing legal duty is not consideration unless new or different consideration is provided.
• UCC ModificationsUCC modifications require no consideration if made in good faith.

• Capacity to ContractMinors, mentally incompetent persons, and intoxicated individuals may avoid contracts due to lack of capacity.
• Misrepresentation DefenseContracts induced by material misrepresentation are voidable when justifiably relied upon.
• Fraud DefenseFraudulent inducement renders a contract voidable; fraud in factum may render it void.
• Duress DefenseDuress exists when an improper threat leaves no reasonable alternative.
• Undue Influence DefenseUndue influence arises from unfair persuasion of a vulnerable party by someone in a dominating position.
• Mutual Mistake DefenseA contract is voidable when both parties are mistaken about a basic assumption materially affecting the exchange.
• Unilateral Mistake DefenseUnilateral mistake permits avoidance when the other party knew or caused the mistake.
• UnconscionabilityA court may refuse enforcement of unconscionable terms based on unfair surprise or oppressive results.
• Statute of Frauds CategoriesThe SOF applies to marriage, year-or-more, land, executors, goods ≥ $500, and suretyship.
• SOF Writing RequirementA writing must reasonably identify the subject, indicate a contract, and state essential terms.
• SOF Exceptions: Part PerformancePart performance may satisfy the SOF for land contracts if unequivocally referable.
• SOF Exceptions: Judicial AdmissionA judicial admission of contract existence satisfies the SOF.
• SOF Exceptions: Promissory EstoppelPromissory estoppel may override SOF when necessary to prevent injustice.
• UCC SOF ExceptionsUCC exceptions include confirmations between merchants, specially manufactured goods, and admissions.
• Misunderstanding DoctrineNo contract forms if parties attach materially different meanings and neither knows of the misunderstanding.

• Parol Evidence RuleThe PER bars prior or contemporaneous terms that contradict a final written integration.
• Parol Evidence ExceptionsParol evidence is admissible to explain ambiguities, show defenses, or prove collateral agreements.
• Interpretation: Course of Dealing/Trade UsageAmbiguous terms may be interpreted using course of performance, dealing, and trade usage.
• Merger Clause EffectA merger clause indicates full integration, strengthening application of the parol evidence rule.

• Condition PrecedentA condition precedent must occur before performance becomes due.
• Condition SubsequentA condition subsequent cuts off an existing duty to perform.
• Constructive ConditionsCourts may imply conditions based on fairness and sequencing of performance.
• Substantial Performance (Common Law)Under common law, substantial performance satisfies constructive conditions except for material defects.
• Perfect Tender Rule (UCC)Under UCC, buyers may reject goods not conforming in any respect unless cure applies.
• UCC Right to CureSellers may cure defective tender before contract time expires or if buyer previously accepted nonconforming goods.
• Anticipatory RepudiationRepudiation occurs when a party clearly indicates it will not perform; the other party may suspend performance and sue.
• Demand for Adequate AssuranceWhen insecurity arises, a party may demand adequate assurance and treat failure to respond as repudiation.
• Material BreachA breach is material when it defeats the essential purpose of the contract and excuses the other party’s performance.
• Divisible ContractsDivisible contracts allow recovery for parts performed even if full performance is not completed.
• Promissory ConditionsA promissory condition is a duty whose failure may both excuse performance and be a breach.
• Express ConditionsExpress conditions must be strictly satisfied unless waived.
• Waiver of ConditionsA party may waive a condition, but reinstatement requires notice and opportunity to comply.
• Wrongful Prevention of ConditionA party who wrongfully prevents a condition from occurring cannot rely on its nonoccurrence.

• Impossibility DefenseObjective impossibility excuses performance when it becomes literally impossible due to unforeseen events.
• Impracticability DefenseImpracticability excuses performance when extreme difficulty or expense fundamentally alters the nature of the…
• Frustration of PurposeFrustration excuses performance when the contract’s principal purpose is substantially undermined by unforeseen events.
• Accord and SatisfactionA new agreement to discharge a claimed obligation is an accord; performance of the accord is satisfaction.
• NovationA novation is a substituted contract replacing one party with another, requiring consent of all parties.
• Accord vs. ModificationAn accord is a new agreement for substitute performance; a modification changes existing obligations.

• Assignment of RightsAssignments transfer contract rights unless material change in duty or risk results.
• Delegation of DutiesDuties may be delegated unless personal skill is required or delegation is prohibited.
• Third-Party BeneficiariesIntended beneficiaries may enforce contract rights once their rights vest.

• Expectation DamagesDamages aim to put the nonbreaching party in the position as if the contract were performed.
• Consequential DamagesDamages are recoverable if foreseeable at the time of contracting.
• Incidental DamagesIncidental damages include reasonable expenses incurred due to breach.
• Mitigation of DamagesNonbreaching parties must take reasonable steps to mitigate damages.
• Restitution DamagesRestitution prevents unjust enrichment by awarding the value of the benefit conferred.
• Reliance DamagesReliance damages compensate for expenditures reasonably made in reliance on the contract.
• Liquidated DamagesLiquidated damages are enforceable if reasonable at formation and not punitive.
• Specific PerformanceSpecific performance is available when monetary damages are inadequate and the terms are sufficiently definite.
• Replevin (UCC)Buyers may recover identified goods wrongfully withheld if unable to cover.
• Buyer's Remedies (UCC)Buyers may reject, revoke acceptance, cover, or recover damages for nondelivery or nonconformity.
• Seller's Remedies (UCC)Sellers may withhold delivery, stop goods, resell, or recover damages.
• Modification of RemediesRemedy limitations must not fail of essential purpose.

• Warranties: ExpressExpress warranties arise from affirmations, descriptions, or samples that form part of the basis of the bargain.
• Warranties: Implied MerchantabilityMerchantability requires goods be fit for ordinary purposes.
• Warranties: Fitness for Particular PurposeFitness warranties arise when a seller knows buyer’s purpose and reliance.
• Disclaimer of WarrantiesDisclaimers must be conspicuous and, for merchantability, must mention “merchantability.”
• Installment Contracts (UCC)Installment contracts require substantial impairment to justify rejection of an installment.
• Risk of Loss: Noncarrier CasesFor noncarrier sales, risk shifts upon tender of delivery.
• Risk of Loss: Carrier CasesFor shipment contracts, risk shifts when goods are delivered to the carrier.
• Identified Goods Loss RuleIf identified goods are destroyed without fault before risk passes, the contract is avoided.
• Open Price Terms (UCC)UCC allows open price terms if parties intended to contract and provides a reasonable price standard.
• Output and Requirements ContractsOutput and requirements contracts are enforceable if made in good faith without unreasonably disproportionate demands.
• Cure of Nonconforming InstallmentsSellers may cure nonconforming installments if nonconformity does not substantially impair the whole contract.
• Contracts Under SealA seal substitutes for consideration in some jurisdictions.