Arkansas Law School 1L Study Guide for Contracts
I. Introduction to Contract Law
Contract law is the body of law that governs the creation and enforcement of agreements between parties. The following are fundamental concepts in Arkansas contract law, which is primarily based on common law, with the Uniform Commercial Code (UCC) governing sales of goods.
II. Formation of Contracts
A. Offer and Acceptance
– Offer: A proposal by one party to another intended to create a legally binding agreement.
– Acceptance: The assent to the terms of an offer, creating a contract.
– Key Case: Lucy v. Zehmer (1954) – The court held that an agreement was enforceable despite the defendant’s claim he was joking because his outward expression manifested intent to contract.
– The exchange of something of value between the parties.
– Past consideration is not valid; there must be a bargained-for exchange.
– Key Case: Hamer v. Sidway (1891) – The court enforced a contract where the nephew refrained from drinking in exchange for money from his uncle, establishing forbearance as valid consideration.
– Individuals must have the legal ability to enter a contract.
– Minors, intoxicated individuals, and mentally incapacitated persons generally do not have capacity.
– Key Law: Restatement (Second) of Contracts § 12
– The purpose and terms of the contract must be legal.
– Agreements to commit a crime or fraud are not enforceable.
III. Defenses to Formation
– Mutual Mistake: Both parties have an incorrect belief about an essential fact.
– Unilateral Mistake: One party is mistaken, and the other knows or should know of the mistake.
B. Misrepresentation and Fraud
– A misrepresentation can lead to voiding a contract if it was material to the agreement and relied upon.
– Fraud involves intentional deceit for personal gain.
C. Duress and Undue Influence
– Duress involves threats to force someone into a contract.
– Undue influence involves taking advantage of a position of power over another person.
IV. Terms of the Contract
A. Express vs. Implied Terms
– Express terms are explicitly stated.
– Implied terms are not stated but are inferred from the conduct of the parties or the circumstances.
B. Parol Evidence Rule
– Generally, evidence of prior negotiations, agreements, or communications is not admissible to alter or contradict the written terms of a contract.
C. Conditions Precedent and Subsequent
– Conditions Precedent: Events that must occur before a party is required to perform their contractual obligations.
– Conditions Subsequent: Events that, when they occur, discharge a party from their contractual obligations.
V. Performance and Breach
A. Substantial Performance
– Occurs when a party has performed enough of the contract to warrant payment, with an allowance for damages caused by the minor breach.
B. Material Breach
– A breach is material if it substantially defeats the purpose of the contract.
– The non-breaching party is excused from further performance and can sue for damages.
– Compensatory Damages: To put the non-breaching party in the position they would have been in had the contract been performed.
– Consequential Damages: Foreseeable damages that result from a party’s breach.
– Punitive Damages: Rare in contract cases, meant to punish the breacher.
B. Specific Performance
– A court order requiring the breaching party to fulfill their obligations under the contract.
– Typically used when the subject matter of the contract is unique.
C. Rescission and Restitution
– Rescission: The contract is canceled, and both parties are returned to their pre-contract positions.
– Restitution: A party is compensated for any benefit conferred to the other party.
VII. Third-Party Issues
A. Third-Party Beneficiaries
– An individual who was not a party to the contract but stands to benefit from its execution.
– Intended beneficiaries have rights, whereas incidental beneficiaries do not.
B. Assignment and Delegation
– Assignment: The transfer of contractual rights to a third party.
– Delegation: The transfer of contractual duties to a third party.
VIII. UCC Article 2 – Sales of Goods
A. Definitions and Scope (UCC 2-102)
– Goods: All things movable at the time of identification to the contract for sale.
– The UCC applies to transactions in goods.
B. Contract Formation (UCC 2-204)
– A contract for sale of goods may be made in any manner sufficient to show agreement.
C. Warranties (UCC 2-313, 2-314, 2-315)
– Express Warranties: Explicitly stated promises about the goods.
– Implied Warranty of Merchantability: Goods are fit for ordinary purposes.
– Implied Warranty of Fitness for a Particular Purpose: Goods are fit for a buyer’s specific purpose, known to the seller.
IX. Statute of Frauds
A contract must be in writing if it is for the sale of goods over $500 (UCC 2-201), cannot be performed within one year, involves the transfer of an interest in real estate, is a suretyship, or is a marital agreement.
X. Contract Interpretation
Courts interpret contracts to give effect to the mutual intention of the parties. Ambiguities are typically construed against the drafter.
XI. Contract Modification and Discharge
– Common law requires new consideration for contract modifications.
– Under UCC 2-209, a contract for the sale of goods can be modified without new consideration if it is done in good faith.
– Discharge by Performance: All parties fulfill their contractual duties.
– Discharge by Agreement: Parties agree to discharge each other from the contract.
– Discharge by Operation of Law: Discharge due to legal reasons, such as bankruptcy or the statute of limitations.
XII. Review and Practice
For final exam preparation, review all key concepts, case laws, and statutes. Practice applying these to hypothetical situations through practice exams and essay questions. Remember, Arkansas follows both common law and the UCC for contracts, so be sure to understand where each applies.