US Contract Law

Sources and Scope

US contract law derives from the common law of contracts, as restated in the Restatement (Second) of Contracts (1981), and from Article 2 of the Uniform Commercial Code (UCC) for sales of goods. The common law governs contracts for services, real estate, and intangible rights; UCC Article 2 applies to goods — all things movable at identification to the contract (§ 2-102). Every state except Louisiana has adopted the UCC. The Restatement (Second), though not binding, reflects the consensus of American courts.

Elements of Formation

A contract requires mutual assent, consideration, capacity, and legality. The Restatement § 17 requires a bargain with mutual assent and consideration. UCC § 2-204(1) permits formation in any manner sufficient to show agreement, including conduct, even if the moment of formation is indeterminate.

Objective Theory

American law applies an objective standard to agreement. In Lucy v. Zehmer (1954), the Virginia Supreme Court enforced a contract written on a restaurant receipt because Zehmer’s outward manifestations — discussing terms, drafting, signing — indicated serious intent to a reasonable person, regardless of his subjective belief it was a jest. Restatement § 19 provides that conduct is a manifestation of assent if the party intends it and knows or has reason to know the other may infer assent.

Offer and Acceptance

Under common law, an offer communicates willingness to bargain, justifying the offeree in understanding that assent concludes the agreement (Restatement § 24). Acceptance must be the mirror image of the offer; additional or different terms constitute a counter-offer. Unless otherwise specified, acceptance is effective upon dispatch (the mailbox rule, Restatement § 63).

UCC Article 2 relaxes these rules. Under § 2-204(3), a contract exists even if terms are left open, provided the parties intended to contract and there is a reasonably certain basis for a remedy. UCC § 2-207, the battle of the forms provision, provides that a definite expression of acceptance containing additional terms operates as acceptance unless expressly made conditional on assent to those terms. Between merchants, additional terms become part of the contract unless they materially alter it, the offer expressly limits acceptance, or the offeror objects within a reasonable time.

Consideration

Consideration is the bargained-for exchange distinguishing enforceable promises from gratuitous ones. Restatement § 71 defines it as performance or a return promise bargained for and given in exchange. The benefit-detriment theory, from Hamer v. Sidway (1891), holds that consideration exists if the promisee suffers a legal detriment at the promisor’s request. Past consideration is insufficient.

The pre-existing duty rule (Restatement § 73) provides that performing an existing legal duty is not consideration. However, UCC § 2-209(1) provides that a modification needs no consideration if made in good faith. Restatement § 89 also recognises that a modification is binding if fair and equitable in view of unanticipated circumstances.

Statute of Frauds

The Statute of Frauds requires certain contracts to be evidenced by a signed writing: contracts for land, those not performable within one year, and guarantees of another’s debt. UCC § 2-201 requires a writing for goods priced at $500 or more, signed by the party to be charged, indicating a contract and specifying quantity. The merchant’s confirmatory memo exception (§ 2-201(2)) permits enforcement against a merchant who fails to object within ten days to a confirmatory writing.

Parol Evidence Rule

The parol evidence rule excludes evidence of prior or contemporaneous agreements contradicting or supplementing a final written expression. Restatement § 214 distinguishes completely integrated writings (the parties’ exclusive expression, which cannot be supplemented) from partially integrated writings (which may be supplemented by consistent additional terms). Exceptions include evidence of fraud, duress, mistake, illegality, or conditions precedent. UCC § 2-202 permits supplementation by course of performance, course of dealing, or usage of trade.

Interpretation

American courts use two competing approaches. The plain meaning rule gives unambiguous language its ordinary meaning without extrinsic evidence. The contextual approach, endorsed by Restatement §§ 212-214 and UCC § 1-303, permits consideration of circumstances, course of performance, and trade usage. Most modern courts adopt a hybrid approach.

Implied Covenant of Good Faith

UCC § 1-304 imposes an obligation of good faith in every UCC-governed contract: honesty in fact and observance of reasonable commercial standards of fair dealing. Restatement § 205 extends the duty to every contract. Breach sounds in contract, not tort, in most jurisdictions.

Remedies for Breach

Expectation damages place the injured party as if the contract had been performed (Restatement § 347). Hadley v. Baxendale (1854), followed in US law, limits consequential damages to those arising naturally from the breach or within the parties’ contemplation. Reliance damages (Restatement § 349) cover expenditures made in reliance. Restitution (Restatement § 370) restores benefits conferred. Specific performance is equitable, available only when damages are inadequate — for unique goods (UCC § 2-716) or real property.

Impossibility and Frustration

Impossibility discharges a duty when performance becomes objectively impossible through no fault of the party. Restatement § 261 extends this to impracticability — excessive difficulty — where non-occurrence was a basic assumption. Frustration of purpose (Restatement § 265) applies when the contract’s principal purpose is substantially frustrated by an unforeseeable event. UCC § 2-615 provides parallel rules for sales of goods.

International Sales and the CISG

The UN Convention on Contracts for the International Sale of Goods (CISG), effective in the US since 1988, governs international sales between parties in different contracting states. It preempts UCC Article 2 when applicable unless the parties opt out. Under CISG Article 18, acceptance is effective upon receipt; Article 19 rejects the mirror image rule. US practitioners must account for the CISG’s differing provisions on damages (Article 74), avoidance (Articles 49, 64), and mitigation (Article 77).