Contracts Study Guide
Contracts is one of the foundational first-year law courses and a heavily tested subject on the bar exam. The course examines how legally enforceable agreements are formed, interpreted, performed, and remedied when breached. Students learn to distinguish binding promises from unenforceable ones by studying doctrines like offer and acceptance, consideration, promissory estoppel, and the statute of frauds.
The subject divides broadly into common-law contract principles and the Uniform Commercial Code (UCC) Article 2, which governs the sale of goods. Common-law rules apply to service contracts, real estate transactions, and most other agreements. Understanding when each body of law applies and how they differ — particularly regarding the mirror-image rule, gap-fillers, and the battle of the forms — is essential for exams.
Contracts also requires you to master remedies: expectation damages (putting the non-breaching party in the position they would have occupied had the contract been performed), reliance damages, restitution, and specific performance. Many exam questions hinge on choosing the correct measure of damages and applying limiting doctrines like foreseeability, certainty, and mitigation.
Table of Contents
1Formation: Offer, Acceptance & Consideration
Contract formation requires a valid offer, acceptance, and consideration. An offer is a manifestation of willingness to enter a bargain that justifies another person in understanding that assent will conclude it. Acceptance must mirror the offer under common law (the mirror-image rule) but is more flexible under UCC 2-207. Consideration requires a bargained-for exchange — each party must give something of legal value. Courts apply the objective theory of contracts, judging intent by outward manifestations rather than secret intentions.
Key Doctrines
- Objective theory of contracts
- Mirror-image rule
- Mailbox rule
- Bargained-for exchange
- Legal detriment test
- UCC 2-207 (Battle of the Forms)
- Option contracts
- Firm offers (UCC 2-205)
Essential Cases
2Promissory Estoppel & Moral Obligation
When consideration is absent, a promise may still be enforceable under promissory estoppel (Restatement Second section 90) if the promisor should reasonably expect the promise to induce reliance, the promisee actually relies to their detriment, and injustice can be avoided only by enforcement. A separate line of cases explores whether a moral obligation arising from a prior material benefit can serve as a substitute for consideration, though most jurisdictions treat this narrowly.
Key Doctrines
- Promissory estoppel (Restatement 2d section 90)
- Detrimental reliance
- Moral obligation / material benefit rule
- Past consideration doctrine
- Charitable subscriptions
3Defenses to Formation
Even when offer, acceptance, and consideration exist, a contract may be voidable or unenforceable due to defenses. Duress involves wrongful threats that leave a party with no reasonable alternative. Unconscionability (procedural and substantive) permits courts to refuse enforcement of oppressive terms. Mutual mistake regarding a basic assumption can render a contract voidable. The statute of frauds requires certain contracts — including those for land, goods over $500, and agreements not performable within one year — to be evidenced by a signed writing.
Key Doctrines
- Economic duress
- Undue influence
- Unconscionability (procedural & substantive)
- Mutual mistake
- Unilateral mistake
- Misrepresentation & fraud
- Statute of frauds
- Parol evidence rule
Essential Cases
4Performance, Breach & Excuse
Once a contract is formed, each party must perform their obligations. A material breach excuses the non-breaching party from further performance and entitles them to damages. Courts distinguish substantial performance (which triggers only a damages offset) from material breach using factors such as the extent of the shortfall and the likelihood of cure. Performance may be excused by impossibility, impracticability, or frustration of purpose when a supervening event destroys a basic assumption on which the contract was made.
Key Doctrines
- Material breach vs. minor breach
- Substantial performance
- Anticipatory repudiation
- Duty to mitigate
- Impossibility / impracticability
- Frustration of purpose
- Constructive conditions
- Good faith and fair dealing
- Express and implied conditions
Essential Cases
5Remedies
The default contract remedy is expectation damages — the amount needed to put the non-breaching party in the position they would have occupied had the contract been performed. Reliance damages compensate for expenditures made in reliance on the promise. Restitution prevents unjust enrichment by restoring the value of benefits conferred. Specific performance is available when damages are inadequate, typically for unique goods or real property. Damages are limited by the doctrines of foreseeability (Hadley v. Baxendale), certainty, and mitigation.
Key Doctrines
- Expectation damages
- Reliance damages
- Restitution / unjust enrichment
- Specific performance
- Foreseeability (Hadley rule)
- Certainty of damages
- Mitigation / avoidable consequences
- Liquidated damages vs. penalties
- Cost of completion vs. diminution in value
Essential Cases
6UCC Article 2 — Sale of Goods
UCC Article 2 governs contracts for the sale of goods and modifies several common-law rules. The UCC relaxes the mirror-image rule through section 2-207, supplies gap-filler terms (price, delivery, payment), recognizes firm offers without consideration (section 2-205), and applies a different statute-of-frauds threshold ($500+). Understanding when the UCC applies versus the common law, and how the UCC's merchant rules, perfect tender rule, and remedial provisions differ, is critical for exam success.
Key Doctrines
- UCC 2-207 (Battle of the Forms)
- Perfect tender rule (UCC 2-601)
- Firm offers (UCC 2-205)
- Gap-filler provisions
- Merchant rules
- Cure under UCC 2-508
- Cover (UCC 2-712) and market damages
- Good faith in output/requirements contracts
Essential Cases
Exam Tips for Contracts
Always identify whether the UCC or common law governs the transaction before applying formation rules. Goods = UCC; services, real estate, and everything else = common law. For mixed contracts, apply the predominant-purpose test.
When analyzing consideration, focus on whether there was a bargained-for exchange at the time the promise was made. Past consideration is generally not valid consideration, and courts rarely inquire into adequacy.
Promissory estoppel is a fallback — raise it only after showing that consideration is weak or absent. Remember that section 90 allows courts to limit the remedy as justice requires, which may mean reliance damages rather than full expectation.
For defenses, always distinguish procedural unconscionability (unfair surprise, unequal bargaining power) from substantive unconscionability (oppressive terms). Most courts require both, though a sliding scale applies.
On breach questions, first determine if the breach is material or minor. Substantial performance by the breaching party limits the non-breacher to damages but does not excuse them from paying under the contract.
For damages, always check Hadley v. Baxendale foreseeability (was the loss within the contemplation of the parties at formation?), certainty (can the amount be proved with reasonable certainty?), and mitigation (did the non-breacher take reasonable steps to minimize loss?).
When calculating expectation damages, use the formula: loss in value + incidental/consequential damages - costs avoided - losses avoided. Show your work and consider alternative measures (cost of completion vs. diminution in value).
On statute-of-frauds questions, identify the applicable provision, check whether there is a sufficient writing, and then look for exceptions (part performance, judicial admission, specially manufactured goods under UCC 2-201(3)).
Frequently Asked Questions
What is the difference between common-law contracts and UCC Article 2?
Common-law contract rules govern services, real estate, employment, and most non-goods transactions. UCC Article 2 governs contracts for the sale of goods (movable, tangible property). Key differences include the mirror-image rule (relaxed under UCC 2-207), the statute-of-frauds threshold ($500 for goods), gap-filler provisions, firm offers without consideration, and the perfect-tender rule for delivery.
What are the elements of promissory estoppel?
Under Restatement (Second) of Contracts section 90, promissory estoppel requires: (1) a clear and definite promise, (2) the promisor should reasonably expect the promise to induce action or forbearance, (3) the promisee actually relies on the promise to their detriment, and (4) injustice can be avoided only by enforcing the promise. Courts may limit the remedy to reliance damages rather than full expectation damages.
How do courts determine if a breach is material?
Courts consider several factors from Restatement (Second) section 241: the extent to which the injured party is deprived of the expected benefit, the likelihood that the breaching party will cure, whether the breaching party acted in good faith, the adequacy of compensation through damages, and the extent of part performance already rendered. A material breach excuses the non-breaching party from further performance; a minor breach only entitles them to damages.
What is the difference between expectation, reliance, and restitution damages?
Expectation damages put the non-breaching party in the position they would have been in had the contract been performed (benefit of the bargain). Reliance damages compensate for expenditures made in reliance on the promise, returning the party to the pre-contract position. Restitution restores the value of any benefit conferred on the breaching party to prevent unjust enrichment. Expectation is the default; reliance and restitution are alternatives when expectation damages are uncertain or unavailable.
What contracts must satisfy the statute of frauds?
Under the common-law statute of frauds, the following contracts must be evidenced by a signed writing: (1) contracts for the sale of land, (2) contracts that cannot be performed within one year, (3) suretyship agreements (promises to pay the debt of another), (4) contracts in consideration of marriage, and (5) executor promises to pay estate debts personally. Under the UCC, contracts for the sale of goods priced at $500 or more require a writing.
Other Study Guides
Browse Contracts Case Briefs
Read the full briefs for every contracts case referenced in this study guide, plus dozens more.