After reading this chapter, you should understand what a contract is, how a contract is formed, the types
of law that govern contracts, the elements of common-law contract formation, and defenses to
contracts. You will learn about performance and discharge, breach, and remedies. You will also
understand important diﬀerences between common-law contracts and contracts between merchants
under the Uniform Commercial Code (UCC). You will recognize commonly used clauses in contracts and
their importance. You will also learn about assignment, delegation, and parol evidence. At the conclusion
of this chapter, you should be able to answer the following questions:
What is a contract?
How is a contract formed?
When does common law govern contract formation, and when is the UCC relevant?
What are the defenses to performance of a contract?
What does it mean to breach a contract, and what are the consequences of breach?
What are remedies for breach of contract?
What common clauses can be used to accomplish certain goals, such as ensuring expedi-
ency, limiting liability, or restricting assignment?
Clint Eastwood had a long-term relationship with Sondra Locke. Sadly, the relationship deteriorated and, allegedly,
ended on unfriendly terms. The couple never married, but they shared a household for many years, and they
worked on many professional projects together. When the relationship ended, Locke sued Eastwood for various
causes of action. To settle the case, Eastwood proposed, among other things, that if Locke dropped the lawsuit
against him, he would secure a development deal for Locke at Warner Bros. Inc. Locke was not only an actress; she
was also a director. No doubt assuming that this deal would advance her professional interests and, at the same
time, bring a long-standing personal dispute to an end, Locke agreed. Locke entered into a settlement agreement
with Eastwood, and as promised, she contemporaneously entered into an agreement with Warner Bros. The
agreement with Warner Bros. had two components. First, it required Locke to submit work that she was interested
in developing, before she submitted it elsewhere. Warner Bros. was to accept or reject the work within thirty days.
For this part of the contract, Locke would receive $250,000 per year for three years. Second, the contract was a
$750,000 “pay or play” deal, which gave Warner Bros. a choice between using Locke’s services as a director and
paying Locke a fee. Though Locke did not know this, Eastwood agreed to reimburse Warner Bros. for the cost of this
contract if she did not have success in developing her projects or using her director services. Warner Bros. paid the
$1.5 million contemplated under the contract, but it did not develop any of Locke’s thirty proposed projects, and it
did not hire her to direct any ﬁlms.