Contracts Legal Terms Glossary
Definitions for contract formation, remedies, defenses, and performance principles.
Definitions
Offer
An offer is a manifestation of willingness to enter into a bargain, made so as to justify the offeree in understanding that assent will conclude the deal. It must contain definite and certain terms and be communicated to the offeree. The objective theory of contracts governs: courts look at whether a reasonable person in the offeree's position would believe an offer was made, not the subjective intent of the offeror.
Acceptance
Acceptance is an unequivocal expression of assent to the terms of an offer, communicated in the manner invited or required by the offeror. Under the mirror-image rule at common law, the acceptance must match the offer exactly; any variation constitutes a counteroffer. The UCC relaxes this rule for sales of goods under Section 2-207, permitting acceptance even with additional or different terms.
Consideration
Consideration is a bargained-for exchange in which each party incurs a legal detriment or receives a legal benefit. It is an essential element of an enforceable contract at common law. Adequacy of consideration is generally not scrutinized by courts — a peppercorn suffices — but past consideration and pre-existing duties typically do not qualify.
Promissory Estoppel
Promissory estoppel is an equitable doctrine that makes a promise enforceable even without consideration when the promisor should reasonably expect the promise to induce reliance, the promisee actually relies to their detriment, and injustice can only be avoided by enforcing the promise. Under Restatement (Second) of Contracts Section 90, the remedy may be limited to the extent of reliance damages rather than full expectation damages.
Breach of Contract
A breach of contract occurs when a party fails to perform a contractual obligation without a valid legal excuse. A material breach goes to the essence of the agreement, excusing the non-breaching party from further performance and entitling them to damages. A minor breach entitles the non-breaching party to damages but does not discharge their duty to perform.
Anticipatory Repudiation
Anticipatory repudiation occurs when a party unequivocally indicates, before the time for performance, that they will not perform their contractual obligations. The non-repudiating party may immediately treat the contract as breached and sue for damages, or wait a commercially reasonable time for performance. This doctrine originated in Hochster v. De La Tour and is codified in UCC Section 2-610.
Specific Performance
Specific performance is an equitable remedy in which a court orders the breaching party to perform their contractual obligations rather than pay money damages. It is typically available only when the subject matter of the contract is unique, such as real property or rare goods, and when money damages would be inadequate. Courts will not order specific performance for personal service contracts because of concerns about involuntary servitude.
Liquidated Damages
A liquidated damages clause is a contractual provision that fixes the amount of damages to be paid in the event of a breach. The clause is enforceable if the amount is a reasonable estimate of anticipated harm at the time of contracting and actual damages would be difficult to calculate. If the amount is disproportionately large, courts may strike the clause as an unenforceable penalty.
Unconscionability
Unconscionability is a defense to contract enforcement arising when a contract or clause is so one-sided as to be oppressive. Courts evaluate both procedural unconscionability — defects in the bargaining process such as unequal bargaining power, hidden terms, or lack of meaningful choice — and substantive unconscionability — terms that are unreasonably favorable to one party. Under UCC Section 2-302, a court may refuse to enforce an unconscionable contract or sever the offending clause.
Parol Evidence Rule
The parol evidence rule bars the introduction of extrinsic evidence — oral or written statements made before or at the time of contracting — to contradict, modify, or vary the terms of a fully integrated written agreement. However, parol evidence may be admitted to explain ambiguous terms, prove fraud or duress, establish a condition precedent, or show that the writing was not intended as a complete integration. The UCC takes a more liberal approach in trade usage and course of dealing contexts.
Statute of Frauds
The statute of frauds requires certain categories of contracts to be evidenced by a signed writing to be enforceable. Traditionally covered categories include contracts for the sale of land, agreements that cannot be performed within one year, promises to pay the debt of another, and contracts for the sale of goods over $500 (UCC Section 2-201). The writing need not be the contract itself — a memorandum or series of writings may suffice if they identify the parties, subject matter, and essential terms.
Mutual Assent
Mutual assent, often called a meeting of the minds, refers to the parties' shared agreement on the essential terms of a contract. Under the objective theory of contracts, courts determine mutual assent by examining outward expressions — words and conduct — rather than secret intentions. If a reasonable person in the position of the offeree would conclude that an agreement was reached, mutual assent exists regardless of either party's private reservations.
Illusory Promise
An illusory promise is a statement that appears to commit a party to perform but, on closer examination, does not actually obligate them to do anything. Because an illusory promise imposes no real constraint on the promisor, it fails as consideration and cannot support a binding contract. Courts distinguish illusory promises from those with implied obligations of good faith or reasonable efforts.
Accord and Satisfaction
An accord is an agreement between the parties to a contract to accept different performance than what was originally promised, and satisfaction is the actual performance of the accord. Together, accord and satisfaction discharge the original obligation. The accord itself does not extinguish the prior duty until the new performance (satisfaction) is completed. This doctrine commonly arises in disputes over the amount owed on a debt.
Novation
A novation is the substitution of a new contract for an existing one, either by replacing a party or by replacing the obligations under the agreement. Unlike an accord and satisfaction, a novation immediately extinguishes the prior obligation. All parties must consent to the novation for it to be effective. The key distinction from assignment or delegation is that in a novation, the original obligor is completely released from liability.
Condition Precedent
A condition precedent is an event or fact that must occur before a party's duty to perform under the contract is triggered. If the condition does not occur, the obligation never becomes due. Conditions may be express (explicitly stated) or constructive (implied by law). Courts tend to disfavor forfeitures and may construe ambiguous language as a promise rather than a condition to avoid harsh results.
Condition Subsequent
A condition subsequent is an event that, when it occurs, extinguishes an existing duty to perform or discharges a duty that has already accrued. Unlike a condition precedent, which must happen before a duty arises, a condition subsequent terminates an obligation that was already in effect. The party seeking to be excused bears the burden of proving the condition subsequent occurred.
Third-Party Beneficiary
A third-party beneficiary is a person who is not a party to a contract but has enforceable rights under it because the contracting parties intended to benefit them. An intended beneficiary — either a creditor or donee beneficiary — may sue to enforce the promise. An incidental beneficiary, by contrast, has no enforcement rights. The beneficiary's rights vest once they learn of the contract and rely on it, or assent to it, after which the original parties generally cannot modify the contract to the beneficiary's detriment.
Assignment
An assignment is the transfer of contractual rights from one party (the assignor) to another (the assignee). Once a valid assignment is made, the assignee steps into the shoes of the assignor and may enforce the right directly against the obligor. Most contract rights are freely assignable unless the assignment would materially change the obligor's duty or risk, the contract prohibits assignment, or public policy bars it.
Delegation
Delegation is the transfer of contractual duties from the obligor to a third party. Unlike assignment of rights, the original obligor remains liable unless a novation releases them. Duties involving personal skill, trust, or judgment generally cannot be delegated. Under UCC Section 2-210, a party may delegate performance unless the other party has a substantial interest in having the original promisor perform.
Substantial Performance
Substantial performance is a doctrine that allows a party who has performed in good faith but with minor deviations to recover on the contract, minus damages for the deficiency. This doctrine prevents the unjust result of total forfeiture when the breach is trivial. It applies primarily in construction contracts and other contexts where perfect performance is impractical. The breaching party must not have willfully deviated from the contract terms.
Mitigation of Damages
The duty to mitigate requires the non-breaching party to take reasonable steps to minimize losses after a breach of contract. Also called the doctrine of avoidable consequences, it does not require heroic or unreasonable efforts but does bar recovery for losses that could have been reasonably prevented. The breaching party bears the burden of proving that the non-breaching party failed to mitigate.
Quasi-Contract
A quasi-contract (or contract implied in law) is not a true contract but a legal fiction imposed by courts to prevent unjust enrichment when one party confers a benefit on another without a formal agreement. The remedy is restitution — the party who conferred the benefit may recover its reasonable value (quantum meruit). Quasi-contractual recovery is available even when the parties did not intend to contract, and it serves as an equitable backstop.
Unjust Enrichment
Unjust enrichment is a cause of action allowing recovery when one party has been unjustly enriched at the expense of another and it would be inequitable to allow the enriched party to retain the benefit without paying for it. The plaintiff must show that the defendant received a benefit, the plaintiff conferred the benefit, the defendant's retention of the benefit is unjust, and there is no adequate remedy at law. It is the substantive basis for the quasi-contractual remedy of restitution.
Implied Warranty
Implied warranties arise by operation of law rather than by express agreement. The implied warranty of merchantability (UCC Section 2-314) guarantees that goods are fit for their ordinary purpose. The implied warranty of fitness for a particular purpose (UCC Section 2-315) applies when the seller knows the buyer's specific need and the buyer relies on the seller's expertise. These warranties can be disclaimed, but conspicuous language is required.