Contracts: Formation, Defenses, and Remedies
Formation
The core sequence is offer, acceptance, consideration, and no defense. An offer must be definite enough to be enforceable and must create a power of acceptance. Acceptance must be a mirror image unless the UCC's 2-207 applies (additional or different terms between merchants). Under the UCC, a definite quantity term is required for an enforceable output or requirements contract, and the price may be left open.
The Statute of Frauds
The classic trap: which contracts must be in writing? Use the mnemonic MY LEGS (Marriage, Year, Land, Executor, Goods over $500, Surety). For goods, the writing must indicate a contract and be signed by the party to be charged; the merchant's confirmatory memo and specially manufactured goods exceptions are frequently tested.
Defenses and excuses
Watch for mistake (mutual versus unilateral), misrepresentation, duress, unconscionability, and impossibility/impracticability/frustration. A modification under common law needs consideration; under the UCC it needs only good faith.
Remedies and third parties
Expectation damages put the plaintiff in the position of performance; reliance and restitution are fallbacks. Consequential damages require foreseeability at the time of contracting. Assignment and delegation questions hinge on whether the duty is personal or the contract prohibits assignment.
Worked rule of thumb
When a question gives you a buyer and seller of goods and a defect, first decide whether the contract is formed, then ask whether the perfect tender rule or the notice and cure provisions apply, then ask about remedies under the UCC (cover, market price, incidental and consequential damages).
Traps
- The mailbox rule applies to acceptance, not to revocation.
- An option contract is enforceable without consideration only in limited circumstances.
- A liquidated damages clause is a penalty if it is unreasonably large relative to anticipated harm.