I. Contract Formation
A contract is formed when there is an offer, acceptance, and consideration.
- Offer: An expression of willingness to enter a contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.
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Acceptance: An unequivocal indication of the offeree’s agreement to the terms of the offer.
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Consideration: Something of value given by both parties to a contract that induces them to enter into the agreement.
Case Law: Lucy v. Zehmer (1954) – A joke made in a bar resulted in a contract for the sale of a farm because the objective manifestation of the parties showed intention to be bound.
II. Contract Defenses
Contract defenses can invalidate a contract, making it unenforceable.
- Duress: When one party uses an unlawful threat or coercion to induce another party to enter into a contract.
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Unconscionability: A contract is unconscionable if it is so one-sided that it would be unfair to one party.
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Misrepresentation: An untruthful assertion by one of the parties about a fact necessary to the contract, causing the other party to enter into the contract.
Case law: Williams v. Walker-Thomas Furniture Co (1965) – The court held the contract for a stereo was unconscionable because the terms were excessively one-sided in favor of the seller.
III. Performance and Breach
The parties must perform their obligations under the contract. Failure to do so constitutes a breach.
- Material breach: A failure to perform a major part of the contract. If one party materially breaches a contract, the non-breaching party is discharged from his or her obligations under the contract.
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Anticipatory breach: When one party indicates in advance that they will not be performing when performance is due, the other party can treat this as a breach.
Case law: Hochster v De La Tour (1853) – The court held that an anticipatory breach had occurred when a tour guide had been informed that his services would not be required, allowing him to seek alternative employment.
IV. Remedies
If a breach occurs, the non-breaching party is entitled to remedies.
- Specific Performance: A court order that requires the breaching party to fulfill the terms of the contract.
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Damages: Money awarded to compensate for loss or injury. There are several types of damages including compensatory, consequential, punitive, nominal, and liquidated.
Case law: Hadley v Baxendale (1854) – The court established a rule for determining consequential damages – the breaching party must either have known at the time of contract formation that such damages would be a probable result of breach, or such damages must be reasonably supposed to have been in the contemplation of both parties.
V. Contract Termination
A contract can be terminated in several ways.
- Mutual agreement: Both parties agree to end the contract.
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Performance: The contract ends when both parties fulfill their contractual obligations.
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Rescission: The contract is cancelled and both parties are put back in the position they were in before the contract was made.
Case law: Sherwood v Walker (1887) – The court held that a mutual mistake regarding the fertility of a cow justified rescission of the contract.
VI. Third Party Rights
Third parties can have rights or obligations under a contract.
- Third party beneficiary: A person who is not a party to the contract but stands to benefit from it.
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Assignment: The transfer of rights from one party to another.
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Delegation: The transfer of duties from one party to another.
Case law: Lawrence v Fox (1859) – A promise made to a third party beneficiary was enforceable, even though the beneficiary was not a party to the contract.
This guide provides a general overview of contract law principles, including concepts, cases and applicable laws. For a more comprehensive understanding, it is recommended that specific Texas law resources on contract law should be consulted as there are nuances and exceptions to these general principles.