Contract law regulates the obligations established by agreement, whether express or implied, between private parties in the United States. The law of contracts varies from
state
State may refer to:
Arts, entertainment, and media Literature
* ''State Magazine'', a monthly magazine published by the U.S. Department of State
* ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States
* ''Our S ...
to state; there is nationwide federal contract law in certain areas, such as contracts entered into pursuant to Federal Reclamation Law.
The law governing transactions involving the sale of goods has become highly standardized nationwide through widespread
adoption
Adoption is a process whereby a person assumes the parenting of another, usually a child, from that person's biological or legal parent or parents. Legal adoptions permanently transfer all rights and responsibilities, along with filiation, from ...
of the
Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
. There remains significant diversity in the interpretation of other kinds of contracts, depending upon the extent to which a given state has codified its common law of contracts or adopted portions of the
Restatement (Second) of Contracts
The Restatement (Second) of the Law of Contracts is a legal treatise from the second series of the Restatements of the Law, and seeks to inform judges and lawyers about general principles of contract common law. It is one of the best-recognized and ...
.
Formation
A contract is an agreement between two or more parties creating reciprocal obligations enforceable at law. The elements of a contract are mutual consent, offer and acceptance, consideration, and legal purpose.
Agreement
Mutual consent, also known as ratification and meeting of the minds, is typically established through the process of offer and acceptance. However, contracts can also be ''implied in fact'', as discussed below. At common law, the terms of a purported acceptance must be the "mirror image" of the terms of the offer. Any variation thereof constitutes a counteroffer.
An offer is a display of willingness by a promissor to be legally bound by terms they specify, made in a way that would lead a reasonable person in the promisee's position to understand that an acceptance is being sought and, if made, results in an enforceable contract. Ordinarily, an offeror is permitted to revoke their offer at any time prior to a valid acceptance. This is partially due to the maxim that an offeror is the "master of his offer."
In the case of options, the general rule stated above applies even when the offeror promises to hold the offer open for a certain period of time. For example, Alice says to Bob, "I'll sell you my watch for $10, and you can have a week to decide." Alice is free to revoke her offer during the week, as long as Bob has not accepted the offer.
However, if the offeree gives some ''separate'' consideration (discussed below) to keep the offer open for a certain period of time, the offeror is not permitted to revoke during that period. For example, Alice offers to sell Bob her watch for $10. Bob gives Alice $1 to keep the offer open for a week. Alice is not permitted to revoke during the week.
A counteroffer is a new offer that varies the terms of the original offer.
[ Therefore, it is simultaneously a rejection of the original offer. For example, Alan says to Betty, "I'll sell you my watch for $10." At this point Betty has the power of acceptance. But Betty responds, "I'll only pay $8." Betty's response is a rejection of Alan's offer but gives Alan a new power of acceptance. It is possible to phrase what appears to be a counteroffer so that it does not destroy the original power of acceptance. For example, Alan says to Betty, "I'll sell you my watch for $10." Betty responds, "I wonder whether you would take $8." Betty retains her original power of acceptance (unless Alan revokes), but she does not give Alan a new power of acceptance, as she is not making an offer of her own. Therefore, she is not making a counteroffer either. As such, mere inquiries are not counteroffers.
An acceptance is an agreement, by express act or implied from conduct, to the terms of an offer, including the prescribed manner of acceptance, so that an enforceable contract is formed.
In what is known as a battle of the forms, when the process of offer and acceptance is not followed, it is still possible to have an enforceable contract, as mentioned above with respect to contracts implied in fact.
]
Uniform Commercial Code
The Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
("UCC") dispenses with the mirror image rule in § 2-207. UCC § 2-207(1) provides that a "definite and seasonable ''expression'' of acceptance...operates as" an acceptance, even though it varies the terms of the original offer. Such an expression is typically interpreted as an acceptance when it purports to accept and agrees on the following terms of the original offer: subject matter, quantity, and price. However, such an expression is not interpreted as an acceptance if it is "expressly conditional" on the original offeror's assent to the varied terms, discussed below. This language is known as the ''proviso''. When the proviso is not used, the terms of the contract are determined by subsection 2. When the proviso is used, but there is no assent by the original offeror to the offeree's varied terms, yet the parties go ahead and perform (act like they have a contract, hence a contract implied in fact), the terms of the contract are determined by subsection 3. So, the terms of a contract under 2-207 are never determined by a combination of subsections 2 and 3.
UCC § 2-207(2) of the statute tells what to do with ''additional'' terms. It does not explicitly address what to do with ''different'' terms. A minority of states, led by California, infer that this was a typographical error by the drafters. As such, those states treat different terms in the same manner as additional terms. The majority rule, however, is that different terms do not become part of the contract; rather, both of the conflicting terms—from both parties—are removed from the contract. This is known as the ''knockout rule''. Any "gaps" resulting from the removal of these terms are "filled" by Article 2's "gap-fillers."
A term in a purported acceptance is ''different'' if it directly contradicts the subject matter of a term present in the original offer. A term in a purported acceptance is ''additional'' if it contemplates a subject matter not present at all in the original offer. As already mentioned, subsection 2 ''does'' tell what to do with additional terms. They do ''not'' become part of the contract if either party is ''not'' a merchant.
A merchant is defined elsewhere in the UCC as a party that regularly "deals in goods of the kind" or otherwise gives an impression of knowledge or skill regarding the subject matter of the transaction. If ''both'' parties are merchants then additional terms in a purported acceptance ''do'' become part of the contract unless any of three exceptions apply.
The exceptions are (out of order): objection by the original offeror in advance; objection by the original offeror within a reasonable time after notice; and material alteration of the contract. The third exception, whether the additional terms materially alter the contract, is the most difficult to apply. Typically, to show it, the merchant must be subjected to undue hardship and/or surprise as a result of the varied term, as measured by the industry involved. It is well established that disclaimer of warranty, indemnification, and arbitration are all clauses that do constitute material alterations.
UCC § 2-207(3) only applies when the proviso language from subsection 1 is used. When the proviso is used, there is no contract formed at that time unless the original offeror assents to the terms that the party purporting to accept has made "expressly conditional."
For example, a buyer sends a purchase order with its own terms. The seller sends an acknowledgement with additional and/or different terms and uses the proviso. The buyer must accept the seller's additional and/or different terms, or else no contract is formed at that time.
Frequently, however, the buyer in such a situation does ''not'' accept the seller's terms, typically through silence, that is, not signing and returning the form to the seller. Subsection 3 is designed to deal with this situation.
When the parties begin to perform the contract, they form a contract implied in fact. The terms of that contract are determined by this subsection. They consist of those terms both forms agree on. Any pertinent term upon the forms do not agree are not part of the contract but instead are supplied by the Code's ''gap fillers''.
Note that whether the parties are merchants is irrelevant for this subsection. However, private parties do not typically send and receive purchase orders or invoices, so in hypotheticals, the parties typically are merchants.
For example, the Brown Company (buyer) sends a purchase order to the Smith Company (seller) for 100 widgets. Brown's terms are silent as to arbitration. Smith sends an acknowledgement, making its acceptance of Brown's offer "expressly conditional" on Brown's assent to Smith's additional term that any dispute arising from the transaction be resolved by arbitration. Brown does not sign and return Smith's form, but Smith goes ahead and fulfills the order. Brown receives the widgets and pays for them. The forms do not agree as to the term of arbitration. Therefore, if a dispute arises, the arbitration clause is not part of the contract. Instead, a UCC gap-filling provision is used. Since the Code does not supply arbitration, Brown is able to avoid Smith's term and bring an action in court.
Examples
*''Laidlaw v. Organ
''Laidlaw v. Organ'', 15 U.S. (2 Wheat.) 178 (1817), is a case decided by the US Supreme Court that established ''caveat emptor'' in the United States.
Facts
Organ purchased 111 hogsheads of tobacco (111,000 pounds) from Laidlaw & Co. on February ...
'', 15 U.S. 178 (1817) the seller of tobacco was not entitled to get out of a contract to sell a load at a low price when it transpired that the War of 1812
The War of 1812 (18 June 1812 – 17 February 1815) was fought by the United States of America and its indigenous allies against the United Kingdom and its allies in British North America, with limited participation by Spain in Florida. It bega ...
had ended, and so that prices would rise (because a navy embargo was lifted). Even though the buyer stayed silent about the peace treaty that had just been agreed when he was asked if prices might rise, he was entitled to enforce the contract.
*'' Pando v. Fernandez'', 127 Misc.2d 224 (N.Y. Sup. Ct. 1984) it was held that it was not impossible to prove that a boy had agreed with the winner of $2.8m in a lottery that she would share the winnings with him
*''ProCD, Inc. v. Zeidenberg
''ProCD, Inc. v. Zeidenberg'', 86 F.3d 1447 (7th Cir., 1996), was a court ruling at the United States Court of Appeals for the Seventh Circuit. The case is a significant precedent on the matter of the applicability of American contract law to new ...
'', 86 F.3d 1447 (7th Cir. 1996) the click of a button accepting a license's terms on software counts as agreement
*'' Specht v. Netscape'', 306 F.3d 17 (2d Cir. 2002) simply clicking a download button does not indicate agreement to the terms of a contract if those terms were not conspicuous
*'' Seixas v. Woods'' 2 Cai. R. 48 (N.Y. Sup. Ct. 1804) a contract was binding despite making a mistake
Consideration and estoppel
Consideration is something of value given by a promissor to a promisee in exchange for something of value given by a promisee to a promissor. Typical examples of things of value are acts, forbearances, and/or promises to do so. The latter referring to those things that a party has a legal privilege to do in the first place. So, promising to refrain from committing a tort or crime is not a thing of value for purposes of consideration. This is known as the bargain theory of consideration and requires that the promises to exchange the things be reciprocally induced. This is especially important for the discussion of past consideration, below.
Consideration must be ''sufficient'', but courts do not weigh the ''adequacy'' of consideration, partially because in a capitalistic society private parties are entitled and expected to determine the value of things for themselves. In other words, the things being exchanged must have ''some'' value in the eyes of the law, but the general rule is that courts do not care ''how much''. Love and affection, for example, would not constitute sufficient consideration, but a penny would. However, sufficient consideration that is grossly inadequate may be deemed unconscionable, discussed below.
Moreover, things that ordinarily constitute sufficient consideration may be deemed insufficient when they are being exchanged for ''fungible'' things. For example, $1 is ordinarily sufficient consideration, and $100 is ordinarily sufficient consideration. However, if Alan and Betty agree to exchange $1 for $100, it would not be an enforceable contract for lack of consideration. An exception to this exception is when there is special significance to the $1 bill itself, such as if it was the first dollar a person made in business and carries tremendous sentimental value, similar to the peppercorn rule. Fungible things do not have to be money, though. They can be grains stored in a silo, for example. One bushel of grain being exchanged for 100 bushels of the same grain would not be sufficient consideration.
Past acts cannot constitute consideration. For example, an employer lays off an employee but promises to give him a pension in exchange for his long and faithful service to the company. It is impossible for the employee to presently promise to have worked all those years for the pension. He worked for the paychecks that the company promised in the past, not knowing whether a pension lay in the future. He might have hoped to one day receive a pension, but the company did not promise one until his layoff. Note, in this situation, the employee may be able to prevail on a claim of promissory restitution, but there is no contract for lack of consideration.
Promissory estoppel is a separate cause of action
A cause of action or right of action, in law, is a set of facts sufficient to justify suing to obtain money or property, or to justify the enforcement of a legal right against another party. The term also refers to the legal theory upon which a p ...
to breach of contract, requiring separate elements to be shown. It has the effect that in many contract like situations, the requirement of consideration need not be present.
The elements of promissory estoppel are:
* an express or implied promise;
* detrimental reliance by the promisee foreseeable to a reasonable person in the promissor's position;
* actual detrimental reliance by the promisee (worsening of their position); and
* for specific performance (as opposed to reliance damages), injustice can only be avoided by enforcing the promise.
Examples
*''Angel v. Murray
''Angel v. Murray'', 113 R.I. 482, 322 A.2d 630 (1974), was a case decided by the Rhode Island Supreme Court that first accepted the rule articulated in the Uniform Commercial Code §2-209(1) and the Restatement of Contracts, Second, Restatement S ...
'', 322 A.2d 630 (RI 1974) modification of a contract does not require consideration if the change is made in good faith and agreed by both parties.
*''Hamer v. Sidway
''Hamer v. Sidway'', 124 N.Y. 538, 27 N.E. 256 (N.Y. 1891), was a noted decision by the New York Court of Appeals (the highest court in the state), New York, United States. Hamer v. Sidway is an important case in American contract l ...
'', 124 N.Y. 538, 27 N.E. 256 (N.Y. 1891) promising to not behave anti-socially amounted to valid consideration for a contract, in this case payment of money by an uncle to a nephew to not swear, drink, gamble and smoke.
*'' Kirksey v. Kirksey'', Ala. Sup. 8 Ala. 131 (1845) an old case holding that it was not sufficient consideration to promise to visit a person, in return for getting a house.
*'' Lingenfelder v. Wainwright Brewing Co.'', 15 S.W. 844 (1891) promising not to sue did not amount to valid consideration
*'' McMichael v. Price'', 58 P.2d 549 (OK 1936) mutuality of obligation, and an illusory promise. It was not illusory to promise to buy all sand from one supplier, even though there was no contractual obligation to buy any sand at all. This meant there was sufficient mutuality of obligation.
*'' Wood v. Lucy, Lady Duff-Gordon'', 222 N.Y. 88, 118 N.E. 214 (1917) it was sufficient consideration to promise to represent someone's interests.
*''Salsbury v. Northwestern Bell Telephone Co.
''Salsbury v. Northwestern Bell Telephone Co.'', 221 N.W.2d 609 (IA 1974), was a case decided by the Iowa Supreme Court concerning contract law.
Background
When John Salsbury was helping to establish Charles City College, Northwestern Bell agree ...
'', 221 N.W.2d 609 (IA 1974) charitable subscriptions can be enforced without consideration or detrimental reliance.
Formality
Ordinarily, contracts do not have to be in writing to be enforceable. However, certain types of contracts do have to be reduced to writing to be enforceable, to prevent frauds and perjuries, hence the name statute of frauds, which also makes it not a misnomer (fraud need not be present to implicate the statute of frauds).
Typically the following types of contracts implicate the statute of frauds:
* Land, including leases over a year and easements
* Suretyships (promises to answer for the debts, defaults, or miscarriages of another)
* Consideration of marriage (not to actually get married but to give a dowry, for example)
* Goods over a certain amount of money (usually $500, as in the UCC)
* Contracts that cannot be performed within one year
For example, a two-year employment contract naturally cannot be performed within one year.
In many states lifetime contracts are not considered to fall within the Statute of Frauds reasoning that life can end at any time, certainly within one year from the time of execution. In other states, notably Illinois, contracts requiring performance for a lifetime are covered by the Statute.
The statute of frauds requires the signature of the party against whom enforcement is sought (the party to be sued for failure to perform). For example, Bob contracts with the Smith Company for two years of employment. The employer would need to sign the writing.
Moreover, the writing for purposes of satisfying the statute of frauds does not need to be the actual contract. It might be a letter, memorializing and formalizing an oral arrangement already made over the phone. Therefore, the signed writing does not need to contain all of the terms that the parties agreed to. At common law, only the essential terms were required in the signed writing. Under the UCC, the only term that must be present in the writing is the quantity. The writing also does not need to be one document, but if there are multiple documents, they must all obviously refer to the same transaction, and they all must be signed. The signature itself does not need to be a full name. Any mark made with the intent to authenticate the writing is satisfactory, such as initials or even such as an X by an illiterate party.
A contract that may otherwise be unenforceable under the statute of frauds may become enforceable under the doctrine of part performance. If the party seeking enforcement of the contract has partially or fulfilled its duties under the contract without objection from the other party, the performing party may be able to use its performance to hold the other party to the terms of the contract.
No writing is required when:
* Goods have been received and accepted;
* Payment has been made and accepted;
* Goods are specially manufactured (there is no market for them); or
* under the UCC, the party against whom enforcement is being sought admits a certain quantity of goods.
The last exception applies up to the quantity admitted, which may include the entire contract. This reversed the rule at common law that permitted a defendant to testify that he indeed contracted with the plaintiff but refuses to perform because it is not in writing.
Privity
Under the principle of privity, a person may not reap the benefits or be required to suffer the burdens of a contract to which they were not a party.
Breach of contract
Performance
*'' Jacob & Youngs, Inc. v. Kent'', 230 N.Y. 239 (1921) a builder who used the wrong kind of piping in construction of a building was entitled to payment, as he had substantially performed the work, but subject to a deduction for the difference in value of the wrong piping.
Damages
The primary remedy for breach of contract is expectation damages, or "benefit of the bargain." At law, this is monetary compensation. At equity, it can be specific performance or an injunction, among other things. For example, Dan and Pam have an enforceable contract for the sale of Dan's watch. The price they agreed to was $10. The actual value of the watch is $15. Pam would be able to successfully pursue a claim for $5. She might elect this route if she did not want to keep the watch but sell it to a third party for a profit. Alternatively, Pam could successfully pursue a claim whereby the court would order Dan to sell the watch for the original price. She might elect this route if she actually wanted the watch for herself.
The remedy for quasi-contracts (contracts implied in law) is quantum meruit, the reasonable or "fair market" value of goods or services rendered. The remedy for promissory estoppel is reliance damages.
Examples
*''Hawkins v. McGee
''Hawkins v. McGee'', 84 N.H. 114, 146 Atlantic Reporter, A. 641 (New Hampshire Supreme Court, N.H. 1929), is a leading case on damages in contracts handed down by the New Hampshire Supreme Court. It has come to be known as the "Hairy Hand" case f ...
'', 84 N.H. 114, 146 A. 641 (N.H. 1929) the plaintiff's hand was injured by electrical wiring, and the doctor promised surgery to give him a 100% good hand. The operation failed, and the plaintiff won damages to the value of what he expected to get, compared to what he had. However, he received no extra compensation for pain and suffering.
*''United States Naval Institute v. Charter Communications, Inc.
''United States Naval Institute v. Charter Communications, Inc.,'' is a notable contract case for discussing the extent and purpose of awarding damages in a breach of contract.
Facts
United States Naval Institute ("Naval") sued Charter Comm ...
'', 936 F.2d 692 (Second Cir. 1991) punitive damages and efficient breach, ''The Hunt for Red October
''The Hunt for Red October'' is the debut novel by American author Tom Clancy, first published on October 1, 1984, by the Naval Institute Press. It depicts Soviet submarine captain Marko Ramius as he seemingly goes rogue with his country's cutt ...
''
*'' Snepp v. United States'' 444 U.S. 507 (1980) restitution damages
Specific performance
Specific performance occurs when a court orders a party to perform a specific act. In the context of a contract, specific performance requires that a party in breach fulfill its duties under the contract.
Arbitration
Parties are permitted to agree to arbitrate disputes arising from their contracts. Under the Federal Arbitration Act
The United States Arbitration Act (, codified at ), more commonly referred to as the Federal Arbitration Act or FAA, is an act of Congress that provides for judicial facilitation of private dispute resolution through arbitration. It applies in bo ...
(which has been interpreted to cover all contracts arising under federal or state law), arbitration clauses are generally enforceable unless the party resisting arbitration can show unconscionability, fraud or something else that undermines the entire contract.
Quasi-contract
The terms quasi-contract and contract implied in law are synonymous. There are two types of quasi-contract. One is an action in restitution. The other is unjust enrichment. Note, therefore, that it is improper to say that quasi-contract, implied in law contract, and unjust enrichment are all synonymous, because unjust enrichment is only one type of the broader category of quasi-contracts (contracts implied in law).
Contracts implied in law differ from contracts implied in fact in that contracts implied in law are not true contracts. Contracts implied in fact are ones that the parties involved presumably intended. In contracts implied in law, one party may have been completely unwilling to participate, as shown below, especially for an action in restitution. There has been no mutual assent, in other words, but public policy essentially requires a remedy.
Unjust Enrichment
The elements of this cause of action are:
* conferral of a benefit on another;
* the other's knowledge of the benefit;
* the other's acceptance or retention of the benefit;
* circumstances requiring the other to pay the fair value for the benefit to avoid inequity.
*'' Britton v. Turner'', 6 N.H. 481 (1834) an employee who left work on a farm after nine months, but had contracted to be paid $120 at the end of one year, was entitled to receive some payment ($95) even though the contract was not completed.
Restitution
The full name of this cause of action is "restitution for actions required to preserve another's life or health." It is available when a party supplies goods or services to someone else, even though the recipient is unaware or does not consent. Unawareness and non-consent can both be due to unconsciousness, but the latter also includes incapacity, which in turn refers to mental incompetence and/or infancy (minority).
The elements of this cause of action are:
* the supplier acts "unofficiously", that is, isn't interfering in the affairs of the recipient for no reason;
* the supplier acts with the intent to charge money for doing so;
* the goods or services are necessary to prevent the recipient from suffering serious bodily injury or pain;
* the recipient is unable to consent;
* the supplier has no reason to know that the recipient would not consent if they could; and,
* if the recipient is "extremely" mentally incompetent or young and objects, the non-consent is immaterial.
Construction
*Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
§2-301
*Restatement §201(1)
*Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
§2-313(1)(b)
*'' Frigaliment Importing Company v BNS International Sales Corp'', 190 FSupp 116 (SDNY 1960) Friendly J
Friendly may refer to:
Places
* Friendly, West Yorkshire, a settlement in Calderdale, West Yorkshire, England
* Friendly, Maryland, an unincorporated community in the United States
* Friendly, Eugene, Oregon, a neighborhood in the United States
* ...
Express terms
*'' Henningsen v. Bloomfield Motors'', on warranties
*Restatement §213, parol evidence rule: a written agreement that is completely integrated discharges prior oral agreements in its scope.
*'' Mitchill v Lath'' 247 NY 377 (1928)
*'' Masterson v Sine'' 68 Cal 2d 222 (1968) Traynor J
*Restatement §203, trade usage non-excluded by parol evidence rules
*'' Columbia Nitrogen Corp v Royster Co''
451 F 2d 3
(4th 1971) 31,000 tons of phosphate
In chemistry, a phosphate is an anion, salt, functional group or ester derived from a phosphoric acid. It most commonly means orthophosphate, a derivative of orthophosphoric acid .
The phosphate or orthophosphate ion is derived from phospho ...
a year for $50 a ton. The buyer could rely on custom of adjusting prices in the fertilizer industry despite the contract's express price, when the market fell.
*'' Southern Concrete Services v Mableton Contractors, Inc'', 407 F Supp 581 (ND Ga 1975)
Implied terms
*Restatement §223, courts can supply a missing term by resorting to trade usage or course of dealing "which is fairly to be regarded as establishing a common basis of understanding"
*UCC §1-205 and 2-208
*'' Wood v. Lucy, Lady Duff-Gordon'', 118 NE 214 (1917) Cardozo J, promise to use reasonable efforts to generate license revenues properly implied. "The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal.... A promise may be lacking, and yet the whole writing may be 'instinct with and obligation,' imperfectly expressed...." UCC 2-306(2)
*'' Bloor v Falstaff Brewing Corp'
601 F2d 609
(2nd 1979) Friendly J
Friendly may refer to:
Places
* Friendly, West Yorkshire, a settlement in Calderdale, West Yorkshire, England
* Friendly, Maryland, an unincorporated community in the United States
* Friendly, Eugene, Oregon, a neighborhood in the United States
* ...
, breach of best efforts covenant
*Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
§315
*'' Kellogg Bridge Company v. Hamilton'', 110 U.S. 108 (1884) there was an implied warranty of fitness for the Kellog Co to build a bridge for a railway company.
*'' Kirke La Shelle Company v. The Paul Armstrong Company et al'', 263 NY 79 (1933) "In every contract there is an implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing."
Unconscionable terms
;Interpretation
*Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
§2-302, 2-314, 2-316, 2-719
*'' Moscatiello v Pittsburgh Contractors Equipment Co''
*'' Pierce v Catalina Yachts, Inc''
*Restatement (Second) of Contracts
The Restatement (Second) of the Law of Contracts is a legal treatise from the second series of the Restatements of the Law, and seeks to inform judges and lawyers about general principles of contract common law. It is one of the best-recognized and ...
§211
*'' Darner Motor Sales v Universal Underwriters''
*'' Gordinier v Aetna Casualty & Surety Co''
*'' Farm Bureau Mutual insurance Co v Sandbulte''
*'' Max True Plastering Co v United States Fidelty & Guaranty Co''
;Substance
*Restatement (Second) of Contracts
The Restatement (Second) of the Law of Contracts is a legal treatise from the second series of the Restatements of the Law, and seeks to inform judges and lawyers about general principles of contract common law. It is one of the best-recognized and ...
§208
*'' Post v Jones''
*''Williams v. Walker-Thomas Furniture Co.
''Williams v. Walker-Thomas Furniture Co.'', 350 F.2d 445 (D.C. Cir. 1965), was a court opinion, written by Judge J. Skelly Wright, that had a definitive discussion of unconscionability as a defense to enforcement of contracts in American contrac ...
'', 350 F2d 445 (DC 1965) procedural unconscionability
*'' Pittsley v Houser''
*'' People v Two Wheel Corp''
*'' Maxwell v Fidelity Financial Services, Inc''
*'' Kansas City Wholesale Grocery Co. v. Weber Packing Corp.'', 93 Utah 414 (1937) a contract clause limiting the time for allowing complaints about the delivery of a shipment of ketchup was unconscionable
*'' Buchwald v. Paramount'', Cal. App. LEXIS 634 (1990) Paramount's contract stipulating it would only pay for work if a $288m film earned a net profit was unconscionable.
*''Harris v. Blockbuster, Inc.
''Harris v. Blockbuster, Inc.'', 622 F. Supp. 2d 396 (N.D. Tex. 2009), established precedent in the district that when a contract has a clause that authorizes one party to make changes to the "contract" without notification, that it is illusory a ...
'', 622 F.Supp.2d 396 (2009)
*'' Henningsen v. Bloomfield Motors, Inc.'', 161 A2d 69 (1960)
Consumer protection
*Wall Street Reform and Consumer Protection Act 2010
A wall is a structure and a surface that defines an area; carries a load; provides security, Shelter in place, shelter, or soundproofing; or, is decorative. There are many kinds of walls, including:
* Walls in buildings that form a fundamental ...
*Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA), Pub. L. 95-109; 91 Stat. 874, codified as –1692p, approved on September 20, 1977 (and as subsequently amended) is a consumer protection amendment, establishing legal protection from abusive deb ...
*Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 ''et seq'', is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. It ...
*Truth in Lending Act
The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing ...
*Fair Credit Billing Act The Fair Credit Billing Act (FCBA) is a United States federal law enacted in 1974 as an amendment to the Truth in Lending Act (codified at et seq.). Its purpose is to protect consumers from unfair billing practices and to provide a mechanism for a ...
* Gramm-Leach-Bliley Act
*Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
*U.S. Department of Justice
The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the United States government tasked with the enforcement of federal law and administration of justice in the United State ...
Cancelling the contract
Mistake
;Unilateral mistakes
*'' Donovan v. RRL Corp.'', 109 Cal.Rptr.2d 807 (2001).
* Restatement, Second, Contracts §§153-154
*'' Speckel v Perkins''
;Mutual mistakes, shared assumptions
* Restatement, Second, Contracts §§151-152 and 154
*''Sherwood v. Walker
Sherwood v. Walker, 66 Mich. 568, 33 N.W. 919 (Mich. 1887), was a case that has played an important role in the evolution of American contract law involving the doctrine of mutual mistake. One of the main issues in the case was whether the remed ...
'' 66 Mich 568, 33 NW 919 (1887)
*'' Nester v Michigan Land & Iron Co''
*'' Griffith v Brymer''
*'' Wood v Boynton''
*'' Firestone & Parson, Inc v Union League of Philadelphia''
*'' Everett v Estate of Sumstad''
*'' Lenawee County Board of Health v. Messerly'', 331 N.W.2d 203 (1982) it transpired an illegal septic system had contaminated the ground.
*'' Beachcomber Coins, Inc v Boskett''
*Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
§§2-312 to 2-315
;Transcription mistakes
* Restatement, Second, Contracts §§155
*'' Chimart Associates v Paul''
Duress and undue influence
*Duress
Coercion () is compelling a party to act in an involuntary manner by the use of threats, including threats to use force against a party. It involves a set of forceful actions which violate the free will of an individual in order to induce a desi ...
Misrepresentation
*'' United States v. Spearin'', 248 U.S. 132 (1918) superior knowledge of US government
*'' Helene Curtis Industries, Inc. v. United States'' (160 Ct. Cl. 437, 312 F.2d 774 (1963) the superior knowledge doctrine Superior knowledge doctrine is a principle in United States contract law. The doctrine states that the government must disclose to a contractor otherwise unavailable information that is vital to contract performance. "The Helene Curtis doctrine of ...
gives the US government a duty of disclosure
*''Laidlaw v. Organ
''Laidlaw v. Organ'', 15 U.S. (2 Wheat.) 178 (1817), is a case decided by the US Supreme Court that established ''caveat emptor'' in the United States.
Facts
Organ purchased 111 hogsheads of tobacco (111,000 pounds) from Laidlaw & Co. on February ...
'' 15 U.S. 178 (1817), on caveat emptor
''Caveat emptor'' (; from ''caveat'', "may he/she beware", a subjunctive form of ''cavēre'', "to beware" + ''ēmptor'', "buyer") is Latin for "Let the buyer beware". It has become a proverb in English. Generally, ''caveat emptor'' is the contrac ...
*'' Obde v. Schlemeyer'' 56 Wash 2d 449, 353 P2d 672 (Supreme Court of Washington, 1960) termite
Termites are small insects that live in colonies and have distinct castes (eusocial) and feed on wood or other dead plant matter. Termites comprise the infraorder Isoptera, or alternatively the epifamily Termitoidae, within the order Blattode ...
infested house
A house is a single-unit residential building. It may range in complexity from a rudimentary hut to a complex structure of wood, masonry, concrete or other material, outfitted with plumbing, electrical, and heating, ventilation, and air condi ...
not revealed to buyers. Even though no questions asked, seller
Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale.
The seller, or the provider of the Goods and services, goods or services, c ...
still liable for failure to disclose.
*'' Smith v. Bolles'', 132 U.S. 125 (1889) damages for misrepresentation of share sale did not entitle the buyer to get money as if the representation were true
Illegality
*''ProCD v. Zeidenberg
''ProCD, Inc. v. Zeidenberg'', 86 F.3d 1447 (7th Cir., 1996), was a court ruling at the United States Court of Appeals for the Seventh Circuit. The case is a significant precedent on the matter of the applicability of American contract law to new ...
'', copyrights
*'' SCO v. DaimlerChrysler'', license agreements
*'' Stoddard v. Martin'' 1 R.I. 1 (1828) a contract to bet on the outcome of a Senate election was void, because it was contrary to public policy to gamble.
See also
*Restatement (Second) of Contracts
The Restatement (Second) of the Law of Contracts is a legal treatise from the second series of the Restatements of the Law, and seeks to inform judges and lawyers about general principles of contract common law. It is one of the best-recognized and ...
1962-1979
*Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
*Uniform Commercial Code adoption
The Uniform Commercial Code (UCC) currently consists of the following articles:
*Art. 1, General Provisions
*Art. 2, Sales
*Art. 2A, Leases
*Art. 3, Negotiable Instruments
*Art. 4, Bank Deposits and Collections
*Art. 4A, Funds Transfer
*Art. 5, Le ...
*English contract law
English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries ...
*United States tort law
This article addresses torts in United States law. As such, it covers primarily common law. Moreover, it provides general rules, as individual states all have separate civil codes. There are three general categories of torts: intentional torts, neg ...
*Civil Procedure in the United States
Civil procedure in the United States consists of rules that govern civil actions in the federal, state, and territorial court systems, and is distinct from the rules that govern criminal actions. Like much of American law, civil procedure is n ...
*Contract theory
From a legal point of view, a contract is an institutional arrangement for the way in which resources flow, which defines the various relationships between the parties to a transaction or limits the rights and obligations of the parties.
From an ...
References
Further reading
;Texts
*I Ayres and RE Speidel, ''Studies in Contract Law'' (2008)
*SJ Burton and MA Eisenberg, ''Contract Law: Selected Source Materials Annotated'' (2011)
*MA Chirelstein Marvin A. Chirelstein (October 8, 1928 - February 16, 2015)Obituary for Marvin A. Chirelstein, Feb. 17, 2015, Columbia Law School, New York, NY, a was a Professor Emeritus of Law at Columbia Law School, where he taught for nearly 30 years. He taught ...
, ''Concepts and Case Analysis in the Law of Contracts'' (6th edn 2010)
*EA Farnsworth, ''Contracts'' (2008)
*LL Fuller
Lon Luvois Fuller (June 15, 1902 – April 8, 1978) was an American legal philosophy, philosopher, who criticized legal positivism and defended a secular and procedural form of natural law theory. Fuller was a professor of Law at Harvard Univers ...
, MA Eisenberg and MP Gergen ''Basic Contract Law'' (9th edn 2013)
*CL Knapp, NM Crystal and HG Prince, ''Problems in Contract Law: Cases and Materials'' (7th edn Aspen 2012)
;Books
* OW Holmes, '' The Common Law'' (1890) chs 7-9
* G Gilmore, ''The Death of Contract
''The Death of Contract'' is a book by American law professor Grant Gilmore, written in 1974, about the history and development of the common law of contracts. Gilmore's central thesis was that the Law of Contracts, at least as it existed in the 2 ...
'' (1974)
;Articles
* MR Cohen, 'The Basis of Contract' (1933) 46 Harvard Law Review 553
*LL Fuller
Lon Luvois Fuller (June 15, 1902 – April 8, 1978) was an American legal philosophy, philosopher, who criticized legal positivism and defended a secular and procedural form of natural law theory. Fuller was a professor of Law at Harvard Univers ...
and WR Perdue, 'The Reliance Interest in Contract Damages' (1936) 46 Yale Law Journal 52-96
*Goldberg, 'Institutional Change and the Quasi-Invisible Hand' (1974) 17 JLE 461
* R Hale, 'Force and the State: A Comparison of "Political" and "Economic" Compulsion' (1935) 35 Columbia LR 149
* MJ Horwitz, 'The History of the Public/Private Distinction' (1982) 130(6) University of Pennsylvania LR 1423
* D. Kennedy, 'Distributive and Paternalist Motives in Contract and Tort Law, with special reference to compulsory terms and unequal bargaining power' (1982) 41(4) Maryland Law Review 563
* F Kessler, 'Contracts of Adhesion – Some Thoughts About Freedom of Contract' (1943
43(5) Columbia Law Review 629
*R Pound
Nathan Roscoe Pound (October 27, 1870 – June 30, 1964) was an American legal scholar and educator. He served as Dean of the University of Nebraska College of Law from 1903 to 1911 and Dean of Harvard Law School from 1916 to 1936. He was a membe ...
, 'Liberty of Contract' (1909) 18 Yale LJ 454
;Contract theory
*''Carnival Cruise Lines, Inc. v. Shute
''Carnival Cruise Lines, Inc. v. Shute'', 499 U.S. 585 (1991), was a case in which the Supreme Court of the United States held that United States federal courts will enforce forum selection clauses so long as the clause is not unreasonably burdens ...
'', on forum selection clause
A forum selection clause (sometimes called a dispute resolution clause, choice of court clause, jurisdiction clause or an arbitration clause, depending upon its form) in a contract with a conflict of laws element allows the parties to agree that ...
s
*''The Bremen v. Zapata Off-Shore Company
''The Bremen v. Zapata Off-Shore Company'', 407 U.S. 1 (1972), was a United States Supreme Court case in which the Court considered when a U.S. court should uphold the validity of a contractual forum selection clause.
The parties had entered into ...
'', forum selection clauses
*'' Charles River Bridge v. Warren Bridge'', on the Constitution's Contract Clause
Article I, Section 10, Clause 1 of the United States Constitution, known as the Contract Clause, imposes certain prohibitions on the states. These prohibitions are meant to protect individuals from intrusion by state governments and to keep ...
*'' Marquez v. Screen Actors Guild Inc.'', on the validity of union shop
In labor law, a union shop, also known as a post-entry closed shop, is a form of a union security clause. Under this, the employer agrees to either only hire labor union members or to require that any new employees who are not already union memb ...
contracts
*'' Salazar v. Ramah Navajo Chapter'', 567 U.S. ___ (2012) the US government's obligation to honor contracts with Native Americans.
*Law of obligations
The law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights a ...
, tort
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
, unjust enrichment
In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make res ...
and trusts
A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
*Freedom of contract
Freedom of contract is the process in which individuals and groups form contracts without government restrictions. This is opposed to government regulations such as minimum-wage laws, competition laws, economic sanctions, restrictions on pri ...
and regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...
*Autonomy
In developmental psychology and moral, political, and bioethical philosophy, autonomy, from , ''autonomos'', from αὐτο- ''auto-'' "self" and νόμος ''nomos'', "law", hence when combined understood to mean "one who gives oneself one's ...
*Bargaining power
Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other. If both parties are on an equal footing in a debate, then they w ...
and inequality of bargaining power
Inequality of bargaining power in law, economics and social sciences refers to a situation where one party to a bargain, contract or agreement, has more and better alternatives than the other party. This results in one party having greater power ...
* Will theory, promise
A promise is a commitment by someone to do or not do something. As a noun ''promise'' means a declaration assuring that one will or will not do something. As a verb it means to commit oneself by a promise to do or give. It can also mean a capacity ...
"Promise" in the Stanford Encyclopedia of Philosophy
*Arthur Linton Corbin
Arthur Linton Corbin (October 17, 1874 – May 1, 1967) was an American lawyer and legal scholar who was a professor at Yale Law School. He helped develop the philosophy of law known as legal realism, and wrote one of the most celebrated legal tre ...
*Adverse selection
In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information. The result is that participants with key information might participate selectively in trades at the expe ...
, moral hazard
In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk ...
, information asymmetry
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.
Information asymmetry creates an imbalance of power in transactions, which ca ...
*Complete contract A complete contract is an important concept from contract theory.
If the parties to an agreement could specify their respective rights and duties for every possible future state of the world, their contract would be complete. There would be no ga ...
and default rule {{inline, date=June 2021
In legal theory, a default rule is a rule of law that can be overridden by a contract, trust, will, or other legally effective agreement. Contract law, for example, can be divided into two kinds of rules: ''default rules'' ...
*Agency cost An agency cost is an economic concept that refers to the costs associated with the relationship between a " principal" (an organization, person or group of persons), and an "agent". The agent is given powers to make decisions on behalf of the princi ...
, principal and agent problem
External links
Uniform Commercial Code
{{DEFAULTSORT:United States Contract Law