Maryland Law School 1L Study Guide for Contracts
Contracts are promises that the law will enforce. The study of contracts is the study of legally enforceable promises. In the United States, contract law is primarily common law, with the Uniform Commercial Code (UCC) governing the sale of goods.
I. Formation of Contracts
Offer and Acceptance (The Agreement)
– An offer is a manifestation of willingness to enter into a bargain. It must be communicated to the offeree and contain definite and certain terms.
– Acceptance is a manifestation of assent to the terms of the offer made by the offeree in a manner invited or required by the offer.
Case: Lucy v. Zehmer (1954)
– Issue: Was the signed contract to sell the farm drafted in jest, or was it a valid offer?
– Rule: An outward expression of agreement is binding, regardless of secret intention.
– Analysis: Even though Zehmer claimed he was drunk and joking, the objective standard of assent applied. The court held that the contract was enforceable because the actions and words of Zehmer suggested a serious contractual intent.
– Conclusion: The contract for the sale of the farm was enforceable.
– This is the value given in return for a promise or a performance. It must be something of legally sufficient value and bargained for exchange.
Case: Hamer v. Sidway (1891)
– Issue: Is a promise to refrain from drinking, smoking, and gambling until the age of 21 sufficient consideration for a promise to pay money?
– Rule: Forbearance to act, if it is done at the promisor’s request, can serve as sufficient consideration.
– Analysis: The court found that the nephew’s forbearance was a sufficient detriment to constitute consideration.
– Conclusion: The uncle’s promise was enforceable.
Capacity to Contract
– The ability of a party to enter into a contract. Certain parties, such as minors, those with mental incapacities, and intoxicated persons, may lack the capacity to contract.
Legality of Purpose
– A contract must be for a lawful purpose. Contracts for illegal purposes are not enforceable.
II. Defenses to Formation
– Mutual mistake occurs when both parties have a common but erroneous belief forming the basis of the contract, which has a material effect on the agreed exchange.
– Unilateral mistake occurs when only one party is mistaken about a basic assumption on which the contract is made.
Misrepresentation and Fraud
– A false assertion of fact that induces another to enter into a contract may give the misled party a right to rescind the contract.
Duress and Undue Influence
– Contracts entered into under duress (by force or threat of force) may be voidable.
– Undue influence involves taking improper advantage of another’s weakness or state of mind to influence their decision in making a contract.
– A doctrine that allows courts to refuse to enforce contracts that are grossly unfair or oppressive.
III. Performance and Breach
Conditions of Performance
– Conditions are events, not certain to occur, which must occur before performance under a contract becomes due.
– Conditions can be express (stated in the contract) or implied (inferred from the contract).
Breach of Contract
– A breach is a failure without legal excuse to perform any promise which forms the whole or part of the contract.
Case: Hawkins v. McGee (1929)
– Issue: What are the damages due for breach of contract when a doctor guarantees the successful restoration of a hand but fails to achieve it?
– Rule: Damages for breach of contract are intended to put the injured party in as good a position as they would have been in had the contract been fully performed.
– Analysis: The court awarded the difference between the value of a good hand (as promised) and the value of the botched hand.
– Conclusion: Hawkins was entitled to damages for breach of contract.
– Damages which provide the plaintiff with the monetary equivalent of contractual performance.
– Damages which compensate the plaintiff for expenses or losses incurred in reliance on the contract.
– Damages which return to the plaintiff any benefit conferred to the defendant.
– An order of the court requiring the breaching party to perform the contract, typically used when the subject matter is unique, such as in real estate transactions.
V. Third Parties
Assignment and Delegation
– Assignment involves the transfer of contract rights to a third party.
– Delegation involves the transfer of contract duties to a third party.
– A person who is not a party to the contract but is intended by the contracting parties to benefit from the contract.
VI. UCC Article 2 – Sale of Goods
– The UCC applies to contracts for the sale of goods. Goods are movable, tangible objects.
Contract Formation under the UCC
– The UCC is more flexible than common law regarding the formation of contracts and does not require as many formalities.
– The UCC establishes various warranties, including the warranty of merchantability and the warranty of fitness for a particular purpose.
Performance and Breach under the UCC
– The UCC provides specific rules for the delivery of goods, acceptance, rejection, and revocation.
VII. Contract Interpretation
Parol Evidence Rule
– A substantive rule of contracts which prescribes what evidence can be admitted, and which evidence must be excluded, when interpreting a written contract.
Interpretation of Ambiguous Terms
– Courts will interpret ambiguous contract terms against the drafter (contra proferentem) or by seeking the parties’ intent and the contract’s commercial reasonableness.
VIII. Maryland-Specific Contract Law Considerations
Maryland follows general American contract law principles but has its own nuances and case law. Students should be aware that Maryland may have specific precedents and interpretations that differ from federal law or other states. It’s important to consult Maryland case law and statutes for state-specific variations.