The Core Principles of Contract Law
A legally enforceable agreement between parties where each promises something of value, and the law can require them to fulfill their obligations.
What is a contract?
Something of value exchanged between parties in a contract - like money, goods, services, or a promise - which makes the contract legally binding. Without this, a contract generally isn't enforceable.
What is consideration?
States a party's intention to enter a contract is judged by what a reasonable person would infer from their words or actions, not by their secret or subjective thoughts
What is the objective theory of intent?
States that when parties put their final agreement in writing, prior or contemporaneous oral or written statements cannot be used to contradict or change the terms of that written contract
What is the Parole Evidence Rule?
Occurs when a party refrains from exercising a legal right (like suing or smoking) in exchange for a promise, and this acts as valid consideration to make a contract enforceable.
What is forbearance as consideration?
The principle that individuals are generally free to make agreements and decide the terms of their contracts without government interferences, as long as the contract is legal and entered into voluntarily
What is freedom of contract?
States a contract was enforceable if one party received a benefit or the other party suffered a legal detriment as part of the agreement. It focused on what each side gained or gave up rather than whether the exchange was truly bargained-for.
What is the benefit/detriment test (old rule)?
A person's words, actions, or conduct that show their intent in a contract, which courts use to determine agreement under the objective theory of contracts.
What is outward manifestations?
A written contract intended to be the complete and definitive statement of the parties' agreement, leaving out earlier or side agreements unless added later in writing
What is final, integrated writings?
The court held that a nephew's forbearance from legal rights (drinking, smoking, gambling) in exchange for his uncle's promise to pay was valid consideration, making the contract enforceable.
What is Hamer v. Sidway?
Refers to whether a contract can be legally upheld in court. If a contract meets all legal requirements - like offer, acceptance, consideration, capacity, and legal purpose- it is this. If it's missing these elements or violates the law, it may not be this.
What is enforceability?
States that a promise is enforceable as a contract if it is the result of a bargained-for exchange, meaning each party's promise or performance is given in return for the other's. It emphasizes mutual inducement rather than just a benefit or detriment.
What is Restatement Section 71?
Occurs when the parties mutually assent to the same terms, determined by objective evidence (words and actions), not their secret intentions.
What is meeting of the minds (NOT subjective)?
Courts may allow outside evidence to:
1. Explain or interpret ambiguous terms
2. Show a condition precedent to the contract's effectiveness
3. Prove fraud, duress, mistake, or illegality
4. Add consistent supplementary terms if the contract is only partially integrated
This blocks prior agreements only to the extent they contradict a final warning, not to explain, supplement, or challenge it
What are the exceptions to the PER?
The court held that a promise to forbear from filing a lawsuit can constitute valid consideration, making an agreement enforceable, even if the claim is uncertain or disputed.
What is Baher v. Penn-O-Tex Oil ?
States a contract is judged by what a reasonable person would understand from the parties' words and actions, not their secret intentions.
What is objective theory of contracts?
Courts generally do not assess whether the value exchanged in a contract is equal - as long as something of legal value is exchanged, the contract is valid.
What is adequacy of consideration?
- A contract exists only if the parties manifest mutual assent to exchange promises or performances
- Assent must be shown by words or conduct indicating intent to be bound
- Actions and circumstances can show agreement even if no explicit words are used
These explain how mutual agreement is formed and recognized in contracts.
What is Restatements Sections 17, 18, and 19?
What is merger clause?
The court held that a promise to refrain from filing a lawsuit or pursuing a claim can serve as valid consideration, making an agreement enforceable, even if the claim's merit is uncertain
What is Pennsy Supply v. American Ash?
Summarizes and clarifies contract law to guide courts and lawyers, providing a reference for principles, rules, and interpretations of contracts.
What is the purpose of Restatement (Second) of contracts?
A promise but doesn't actually obligate anyone, so it cannot create an enforceable contract
What is an illusory promise?
These cover how contracts can be modified or waived, how conditions affect obligations, and the rules for revoking waivers or choosing remedies, emphasizing mutual agreement and good faith.
What are Restatements Sections 209-216?
The court held that a mere promise to give a gift, without any consideration for bargained-for exchange, is not enforceable as a contract
What is Dougherty v. Salt?