Contracts

LAW 205 · 4 units · Autumn Quarter

Contracts is the foundation of commercial law and perhaps the most practically important course in the first year. This course covers the essential principles governing the formation, interpretation, performance, and breach of contracts. Through careful analysis of leading cases and statutory materials, students develop the analytical framework essential to understanding private ordering and the enforcement mechanisms available when promises are broken.

The course begins with contract formation—offer, acceptance, and consideration. Students examine the Uniform Commercial Code provisions applicable to sales of goods, particularly Article 2, and compare the common law approach with UCC solutions. The course then turns to contract interpretation, exploring the parol evidence rule, course of dealing, course of performance, and trade usage. Finally, students study the doctrines addressing performance and breach: conditions, material breach, substantial performance, and the remedies available for breach.

Modern contract practice frequently involves standard form contracts, warranties, remedies limitations, and the interplay between common law and statutory provisions. This course provides the foundational knowledge necessary to draft, review, and litigate contracts across virtually every practice area.

Learning Objectives

  • Identify and analyze the elements of contract formation: offer, acceptance, and consideration
  • Apply common law principles and distinguish UCC provisions for contracts for the sale of goods
  • Understand the doctrine of consideration, including adequacy, past consideration, and bargain exchange
  • Interpret contracts using the parol evidence rule, course of dealing, usage of trade, and course of performance
  • Analyze conditions precedent, conditions concurrent, and conditions subsequent, and their effect on performance obligations
  • Distinguish material breach from substantial performance and assess remedies for breach
  • Apply contract remedies: expectation damages, reliance damages, restitution, and specific performance

Required Casebook

Contracts: Cases and Materials (7th ed., Knudson, 2020) — West Academic. This casebook combines classic common law contract cases with UCC materials, offering practical perspectives on contract formation, interpretation, and remedies with integrated notes and problem sets.

Lecture Topics

Week 1: Introduction to Contract Law

The concept of a contract, why contracts matter, freedom of contract, and the sources of contract law: common law, restatement, and the Uniform Commercial Code.

Week 2: Offer

Requirements for an offer, distinguishing offers from invitations to negotiate, advertisements and price quotations, and the termination of offers by rejection, counter-offer, or lapse of time.

Week 3: Acceptance

Methods of acceptance, communication of acceptance, acceptance by performance, the mirror image rule and its UCC departure, and the acceptance of offers for unilateral contracts.

Week 4: Consideration

The doctrine of consideration, bargain exchange, adequacy of consideration, past consideration, illusory promises, and the UCC good faith performance standard.

Week 5: Intro to the UCC and Article 2

Structure and scope of Article 2, merchant definition, good faith and fair dealing, and differences between common law and UCC formation rules.

Week 6: Contract Interpretation

Plain meaning rule, parol evidence rule under common law and UCC §2-202, course of dealing, course of performance, trade usage, and the ambiguity doctrine.

Week 7: Performance and Conditions

Conditions precedent, concurrent, and subsequent, express and implied conditions, the duty to cooperate, and implied conditions of performance.

Week 8: Breach and Excuses for Performance

Material breach vs. substantial performance, anticipatory repudiation, prospective non-performance, excuse by impossibility, frustration, and force majeure.

Week 9: Remedies for Breach

Expectation damages, foreseeability test from Hadley v. Baxendale, reliance damages, restitution, liquidated damages, and mitigation doctrine.

Week 10: Special Remedies and Limitations

Specific performance, injunctive relief, remedies limitations clauses, UCC remedy sections, and consequential and incidental damages.

Week 11: Third Party Rights

Intended vs. incidental beneficiaries, third party beneficiary contracts, assignment of rights, delegation of duties, and the rights of assignees.

Landmark Cases

Hadley v. Baxendale (1854)

The seminal case on damages limitation. Damages are limited to losses that were foreseeable at the time of contract formation. This case remains the foundational test for consequential damages in every common law contract dispute.

Lucy v. Zehmer (1954)

Classic case establishing that contract formation depends on objective manifestation of intent, not subjective intent. Even where a party claims jest or lack of seriousness, an objective perspective determines whether the parties intended to form a contract.

Carlill v. Carbolic Smoke Ball Co. (1893)

Foundational case on offer, acceptance, and consideration for unilateral contracts. Court held that a public advertisement promising reward for performance could constitute an offer, and performance constituted acceptance and provided consideration.

Jacob & Youngs, Inc. v. Kent (1921)

Illustrates the substantial performance doctrine: where the contractor cannot achieve perfect performance without extreme cost, substantial performance may discharge the duty to perform if the deviation is minor and the purpose substantially achieved.

Williams v. Walker-Thomas Furniture Co. (1965)

Introduces the doctrine of unconscionability, preventing one-sided enforcement of grossly unfair contracts, particularly in consumer contexts. Established that both procedural and substantive unconscionability must be examined.

Study Guide

Contract Formation Analysis Framework

Every contract question begins with: Was a contract formed? If so, what are its terms? To analyze formation, systematically examine:

  1. Offer: Is there a manifestation of willingness to enter a bargain? Must be definite enough in terms. Consider whether ads or invitations are offers or merely invitations to negotiate.
  2. Acceptance: Has the offeree accepted the offer in the manner required? Be alert to the mirror image rule (common law) versus UCC flexibility (additional terms).
  3. Consideration: Is there a bargained-for exchange? Each party must give something of value in exchange for the other's promise. Watch for illusory promises, past consideration, and conditional gifts.

Contract Interpretation

Once formation is established, interpret the contract to determine obligations and rights:

  • Start with the plain language of written terms
  • Apply the parol evidence rule: extrinsic evidence is generally excluded for integrated agreements
  • Consider course of dealing, course of performance, and trade usage (particularly under UCC §2-202)
  • Resolve ambiguities against the drafter (contra proferentem)

Performance and Breach

Analyze what performance is required and whether it has been rendered:

  • Identify whether performance obligations are conditional (precedent, concurrent, subsequent)
  • Determine if material breach or substantial performance applies
  • Consider excuses for non-performance: impossibility, frustration, force majeure

Remedies

Calculate available remedies for breach:

  • Expectation Damages: Put the non-breaching party in the position they would have been had the contract been performed, minus costs saved
  • Reliance Damages: Recovery for losses incurred in reliance on the contract (alternative measure, typically smaller)
  • Restitution: Recovery of the value of what was conferred on the breaching party
  • Specific Performance: Court order requiring the breaching party to perform (equitable remedy, not available for personal services)

Key UCC Distinctions

  • Merchant's firm offer under §2-205 is irrevocable without consideration
  • Additional terms in acceptance don't prevent contract formation but become part of the contract if accepted (§2-207)
  • Course of performance, course of dealing, and usage of trade supplement the written terms (§2-202)
  • Good faith and fair dealing are mandatory in all UCC contracts (§1-304)

Exam Strategy

  • Always determine whether you're applying common law or UCC (look at what's being sold)
  • Be methodical about formation—don't skip steps
  • Recognize ambiguities and analyze how they would be resolved
  • For breach analysis, identify the condition and whether it was satisfied
  • Calculate remedies explicitly, showing your work
  • Flag issues around unconscionability, disclaimers, and remedy limitations

Practice Questions

MBE-style multiple choice questions covering contract formation, consideration, UCC provisions, interpretation, performance, and remedies. Quiz modules with detailed explanations of correct and incorrect answers.

Additional Resources

  • Restatement (Second) of Contracts — Primary secondary authority on common law contract principles.
  • Uniform Commercial Code Article 2 — Sales of goods rules; §2-201 (statute of frauds), §2-204 (formation), §2-206 (acceptance), §2-209 (modification).
  • Contract Drafting Examples — Study well-drafted and poorly-drafted contracts to understand good drafting practices.
  • Damages Calculation Worksheets — Practice calculating expectation, reliance, and restitution damages with fact patterns.
  • Contract Checklists — Use systematic checklists to ensure complete analysis of formation, interpretation, and performance issues.
  • UCC Commentary — Official comments to the UCC sections provide important guidance on policy and interpretation.

Flashcards

Key terms: Offer, Acceptance, Consideration, Bargain exchange, Illusory promise, Material breach, Substantial performance, Expectation damages, Hadley foreseeability test, Parol evidence rule. Spaced repetition ensures mastery of foundational contract doctrine.