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65 Cards in this Set
- Front
- Back
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Contract
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Legally binding agreement between 2 or more parties who agree to perform or to refrain from performing some act now or in the future.
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Objective & Subjective Theory of Contracts
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Intent examined by courts through theory
Judged by outward, objective facts as interpreted by a reasonable person Includes: Party said when entering contract, how party acted or appeared (conduct or words), the circumstances surrounding the transaction |
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Requirements of a Valid Contract
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4 Core Requirements
Agreement – includes offer and acceptance Consideration – bargained for exchange Capacity – competent parties Legality – legal and not against public policy, etc |
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Unilateral Contract
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Offeree can accept the offer only by complete the contract performance
Promise for an act Formation occurs upon performance Ex: Contest, lotteries, prizes |
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Bilateral Contract
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When accepting the offer the offeree must only promise to perform.
Promise for a promise |
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Express Contract
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Terms of the agreement are fully & explicitly stated in words, oral or written.
Signed lease |
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Implied Contract & Requirements
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AKA Implied In Fact
Conduct of the parties, rather than words, creates and defines the terms of the contracts Have specific requirements --Plaintiff must furnish some service or property Plaintiff expected to be paid for service or property Defendant knew or should have known payment was expected Defendant had a chance to reject the services or property and did not |
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Executed vs. Executory Contract
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1. Executed Contract
Been fully performed on both sides 2. Executory Contract Contract that has not been fully performed. If one party has fully performed but the other has not, the contract is said to be executed on one side and executory on the other |
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Voidable Contracts
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Valid contract but one that can be avoided at the option of one or both of the parties.
Party with the option can either: Avoid any duty to perform Both parties released from contract Ratify the contract Both parties must fully performed Ex: Minors, Fraudulent conditions, Duress |
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Void Contracts
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No contract at all.
No legal obligations. Ex: Lacking capacity, illegal purpose |
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Offer
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Offeror – makes the offer or proposal to another party.
Offeree – one to whom the offer or proposal is made. Offer – promise or commitment to do or refrain from doing some specified thing in the future. 3 Elements Serious intention to become bound by the offer Terms of the offer must be reasonably certain Offer must be communicated resulting in knowledge |
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Lucy v. Zehmer
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Facts
Important Legal Points Look at outward expression of a person manifesting his intention rather than to his secret and unexpressed intention. |
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Concepts on Intention Slides
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Effective order – serious intent on part of the offeror.
Not determined by subjective intentions, beliefs and assumptions of the offeror. Expressions of Opinion – not an offer Statements of Future Interest – not promise Preliminary Negotiations Request/Invitation to Negotiate – not an offer Submit bids – Invitation to submit – not an offer Submission of bid – offers and can bind by accepting bid Agreements to Agree May agree to material terms of contract Enforceable if clear intent to be bound |
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Advertisements
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Not offers to but invites to negotiate
Mail-order catalogues, price lists and circulars Price Lists Invites the buyer to offer to buy at that price Only offer in rare circumstances Courts have construed ads to be offers if the ad contains definite terms that invite acceptance |
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Definiteness of Terms
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Terms that are reasonably definite so that a court can determine if breach occurred and provide appropriate remedy.
Required terms depend on type of contract Courts may supply missing term if clearly manifested intent to form a contract Must include: ID of the parties, ID of object of contract, Consideration to be paid, Time of payment, delivery or performance |
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Termination of the Offer
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Termination of Action of the Parties
Revocation of Offer by the Offeror Rejection Counteroffer Termination by Operation of Law |
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Revocation
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Offeror’s act of withdrawing
Can be accomplished by express repudiation or By performance of acts that are inconsistent with the existence of offer and made known to offeree. General Rule: Effective when offeree actually receives it. |
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Irrevocable Offers
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Option contract
Created when offeror promises to hold offer open for specified period of time in return for consideration by offeree. Reasonable time specified or implied Offeree has changed position because of justifiable reliance on offer. May hold detrimental reliance makes irrevocable Promissory Estoppel – barred from revoking because offeree has already changed actions |
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Rejection
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Rejection = termination
Any attempt to accept construed as new offer Ordinarily rejection accomplished by words/conduct showing intent not to accept Effective only when actually received by offeror |
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Counteroffer
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Occurs when offeree rejects the original offer and simultaneously makes a new offer
Mirror Image Rule Requires offeree’s acceptance to match offeror’s offer exactly. Any change, addition, etc automatically terminates offer and substitutes the counteroffer |
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Termination by Operation of Law
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Lapse of time
Terminates at the end of reasonable period Reasonable period depends on subject matter Destruction of the specific subject matter of offer Death or incompetence of the offeror or the offeree Supervening illegality of the proposed contract |
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Acceptance
a. Including Mode & Timeliness |
Voluntary act (words/conduct) by the offeree that shows assent to terms. Need:
Unequivocal Acceptance Mirror Image Rule Silence Generally cannot constitute acceptance Can work if have prior dealings with offeror Communication of Acceptance Offeror must be notified – based upon type Bilateral vs Unilateral a. Mode & Timeliness Bilateral General rule: Timely if made before offer terminated Mailbox Rule Acceptance becomes valid when dispatched not when received. Doesn’t apply to instant forms (telephone, fax) Email – UETA – effective when sent Exceptions |
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Consideration
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Value given in return for a promise or in return for performance
2 Parts Something of legally sufficient value must be given in exchange for the promise; and Must be bargained-for exchange |
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Legal Value & Bargained Exchange
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Legal Value
Promise to do something that one has no prior legal duty to do Performance of an action that one is otherwise not obligated to undertake, or Refraining from action that one has legal right to undertake (forbearance) Bargained For Exchange Provide the basis for bargain struck between contracting parties. |
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Agreements that Lack Consideration
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Preexisting Duty
Promise to perform legal duty or bound to perform certain duty via law or contract Unforeseen Difficulties Rescission and New Contract Can quit and make new contract Past Consideration No consideration |
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Promissory Estoppel
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Person who reasonably and substantially relied on the promise of another may be able to obtain recovery
If found – promisor estopped from asserting lack of consideration as defense. Elements to Recover: Clear & Definite promise Promisee must justifiably rely on promise Reliance normally must be substantial/definite character Justice served by enforcement of promise |
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Capacity
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Legal ability to enter into contract
Minors Age of majority – 18 Intoxication Can be voidable (if sufficiently drunk) or valid Must prove that intoxication impaired reason and judgment so severly did not comprehend legal consequences Mental Incompetence Void – only guardian can enter into contract |
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Contracts Contrary to Statute
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Contracts to Commit a Crime
Usury Sets max rate of interest that can be charged for different types of transactions including ordinary loans Lender above interest rate = usury Gambling Licensing Statutes |
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Contracts Contrary to Public Policy
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Contracts in Restraint on Trade
Covenant not to Compete AKA Restrictive Covenant Allowed except if: Excessive in duration Unreasonable geographic restriction |
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Voluntary Consent
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Used as a defense to contract’s enforceability
Voluntary consent or Genuineness of Assent lacking when: Mistake Misrepresentation Undue influence Duress |
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Mistakes
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Mistakes of Fact:
Bilateral – made by both parties regarding material fact – important to subject matter Occurs – can be rescinded or cancelled by either party Unilateral – made by only one party Does not afford the mistaken party any right to relief |
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Misrepresentation
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Fraudulent misrepresentation refers only to misrepresentation that is consciously false and is intended to mislead another.
Consists of following elements: Misrepresentation of material fact must occur Intent to deceive Innocent party must justifiably rely on misrepresentation |
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Undue Influence & Duress
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Arises from special kinds of relationships in which one party can greatly influence another party – thus overcoming that party’s free will.
Lacks genuine assent and is therefore voidable. Arises from confidential/fiduciary relationships. Duress Forced into agreement Defense and Ground for Rescission Must prove threat and that act legally/morally wrongful and incapable of exercising free will |
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Statute of Frauds
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If Contract falls within – required to be in writing:
Interests in land Cannot by its terms be performed within 1 year from date of formation Collateral contracts Promises made in consideration of marriage Contracts for sale of goods priced at $500 or more (UCC) |
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Performance
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Tender
Unconditional offer to perform by person who ready, willing and able to do so. Seller (places goods at disposal of buyer) Buyer (Offers to pay and tenders payment) Complete Performance Performance = perfect Avoid material breach Substantial Performance In good faith performs substantially all of the terms of a contract can enforce the contract against the other party Performance to Satisfaction of Another |
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Jacob v. Youngs & Kent
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*Facts
*Important Points -An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage and will not always be the breach of a condition -Courts weigh purpose to be served, desire to be met, excuse for deviation from the agreement and difficulty of enforcement – only then can tell whether should be forced to comply. |
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Material Breach of Contract
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Breach = nonperformance
Material breach = performance is not at least substantial. Material breach excuses performance of contractual duties and party can sue. Minor duty – non-breaching party’s duty to perform can sometimes be suspended until the breach has been remedied. |
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Anticipatory Repudiation
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Duty exists but one party refuses to carry out his or her contractual obligations.
Treated as material breach and can bring claim for damages immediately. Until non-breaching party treats as early repudiation, other party can retract by proper notice and restore the parties to original obligations. |
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Time for Performance
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Reasonable time to complete is implied
If specific time is stated parties must perform by that time Time is stated to be “of the essence” or vital, parties must perform within the stated time period because the time element becomes a condition. |
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Rescission
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Process by which a contract is canceled or terminated and the parties are returned to the positions they occupied prior to forming.
Mutual Rescission – parties must make another agreement that also satisfies the legal requirements for a contract (i.e. need offer, acceptance and consideration) Writing Requirement – need written rescission in UCC Sale of Goods If one party has performed, agreement to cancel will not normally be enforced. |
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Novation
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Occurs when both of parties to a contract agree to substitute a 3rd party for 1 of the original parties.
Requirements Previous valid obligation Agreement by all parties to a new contract Extinguishing of the old obligation (discharge) New contract is valid |
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Accord & Satisfaction
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Accord = contract to perform some act to satisfy an existing contract duty.
Duty has not been discharged Satisfaction = performance of the accord agreement. Once original accord made – original contract duty is suspended. Perform by doing act in accord or original contract |
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Discharge of Operation of Law
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*Alteration
If material alteration by one party, other party discharged, if altered without consent *Statute of Limitations 2-3 years for oral contract 4-5 years for written contract Restricts when party can sue *Bankruptcy |
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Impossibility & Impracticability
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*Temporary Impossibility
Suspends performance UNLESS Lapse in time & change in circumstances surrounding the contract make it substantially more burdensome for parties to perform Gene Autry *Commercial Impracticability Makes it more difficult or expensive to perform courts MAY excuse. Anticipated performance must become significantly more difficult or costly than originally contemplated at time of contract formation |
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Frustration of Purpose
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*Contract will be discharged if supervening circumstances make it impossible to attain the purpose both parties had in mind when making the contract.
*Supervening event must not have been reasonably foreseeable at the time of the contracting. *Typically – event that decreases the value of what a party receives under the contract |
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Compensatory Damages
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*Compensating for the loss of the bargain
*Standard formula = value of breaching party’s promise – value of actual performance – amt of damage avoided Sale of Goods Damage = K price – Market price Sale of Land = Specific performance or K price – Market price |
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Consequential Damages
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Foreseeable damages that result from breach
AKA Special Damages Flow from results or results of breach To recover – breaching party must know or have reason to know that special circumstances will cause the non-breaching party to suffer an additional loss. |
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Mitigation of Damages
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Innocent injured party held to duty to mitigate or reduce the damages that he/she suffers.
Duty owed depends on the nature of the contract. Majority Rule – persons whose employment has been wrongfully terminated owe a duty to mitigate damages suffered because of their employers’ breach of the employment contract. |
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Liquidated Damages
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Specifies that a certain dollar amount is to be paid in the event of a future default or breach.
Frequently used in construction contracts Penalty specifies certain amount to be paid. If court doesn’t enforce = actual damages 2 Considerations by Court to Enforce Were damages difficult to estimate at formation? Was amount set a reasonable estimate and not excessive? |
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Specific Performance
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Good for 3 Reasons:
Don’t worry about collecting monetary damages Need not spend time seeking an alternative K Performance more valuable than damages Sale of Land Contracts for Personal Services/Employment |
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Reformation
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Used when parties have imperfectly expressed their agreement in writing.
Fraud or Mutual Mistake Oral Contracts & Covenants Not to Compete With 2 party binding contract, courts will allow evidence the correct terms of the oral contract thereby reforming the written contract Covenant not to compete – if for valid and legitimate purpose but the area/time restraints unreasonable some courts will reform |
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Waiver of Breach
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Waiver = knowing relinquishment of legal right
Consequences Party waiving breach cannot take action – waives past breach Reasons for Waiving Waiver & Subsequent Breaches Will not waive subsequent, additional or future breaches. Will be extended if reasonable person would conclude that similar breach will be acceptable. Pattern of Conduct |
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Article 2 of the UCC
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Governs sales contracts
Common law contracts still apply Common law and UCC conflict – UCC controls Rules vary if buyer or seller is a merchant |
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Sale
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Broad scope
Applies to transaction of sale of goods Covers gifts of goods Sale = passing of title from the seller to buyer for a price. Title = formal right of ownership of property Price may be payable in money or other goods, services or realty |
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Goods
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Item of property that must be tangible and moveable.
Tangible = physical existence Movable = can be carried from place to place |
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Merchant
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UCC presumes that in certain phases of sales transactions involving merchants = special rules
Don’t apply to consumer just merchants Merchant = person acting in a mercantile capacity, possesses or uses an expertise specifically related to goods being sold. |
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Scope of UCC 2A - Leases
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Leases for cars, equipment, etc.
Covers any transaction that creates lease of goods as well as subleases of goods. Basically same rules as UCC Article 2 Lease agreement = bargain between lessor and lessee Lessor = one who sells the right to possession and use of goods under lease Lessee = one who acquires the right to possession and use of goods under lease. |
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Statute of Frauds
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K for sale of goods at $500 or more
Lease for $1000 or more Need only writing that shows intent of parties to be bound and signed by party against whom its to be enforced. Special Rules: For Merchants: Applies only to sales not leases Can satisfy writing requirement if one sends signed written confirmation to other merchant. Must indicate terms and merchant receiving must know contents and that person 10 days to object |
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When Title Passes
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Shipment & Destination Contracts
Shipment K – Seller to ship by carrier. Once in carrier’s hands then title passes to buyer Destination K – Seller required to deliver goods to particular destintation. Title passes when goods tendered at destination or tender of delivery (goods at buyer’s disposition) Delivery w/o Movement of the Goods Delivery of title, bill of lading, warehouse receipt Title passes when document is delivered Entrustment Rule If deals with goods of that kind gives merchant power to transfer all rights to buyer in ordinary course of business. Ordinary course = good faith and w/o knowledge that the sale violates the rights of another party. |
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Risk of Loss
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Delivery with Movement of Goods
Shipment K – risk of loss passes to buyer when goods delivered to carrier Destination K – risk of loss passes when goods tendered to buyer at specified destination Delivery without Movement of Goods Pick up goods Non-merchant – risk of loss passes when make available for pickup Merchant – risk of loss passes when actual possession occurs |
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Remedies of Seller/Lessor
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Right to Withhold Delivery
Buyer wrongfully rejected/revoked acceptance Failed to make proper/timely payment Right to Resell or Dispose of Goods Right to Recover the Purchase Price/Lease Due Unpaid seller who is unable to resell or dispose of goods can bring action to recover purchase price but only under one of the following circumstances: Buyer accepted goods and has not revoked acceptance Conforming goods are lost/damaged after risk passed Buyer breached after goods identified and seller can’t resell Right to Recover Damages |
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Remedies of Buyer/Lessee
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Right to Cover
Right to Obtain Specific Performance Right to Recover Damages Right to Reject the Goods Accept, Accept/Reject or Reject if not conforming Must be within reasonable time with notice to seller Right to Recover Damages for Accepted Goods Nonconforming goods + damages in ordinary course Revocation of Acceptance Ok if 1) Predicated on cure and none within reasonable time, 2) Buyer didn’t discover before acceptance |
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Warranties
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Title
Good title No liens or Infringements Disclaimer of Title Warranty Express Implied |
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Express Warranties
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Making representations concerning the quality, condition, description or performance potential of the goods.
Affirmation or promise of fact Goods conform to any description of them. Goods conform to any sample or model of goods shown to the buyer Statements of Opinion/Puffery Statements by Experts |
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Implied Warranties
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Implied Warranty of Merchantability
Automatic Sale by merchant of goods in kind must be merchantable. Merchantable = reasonably fit for ordinary purposes for which gods are used. Implied Warrant of Fitness Knows purpose for which buyer will use good and knows that buyer is relying on skill/judgment of seller to select suitable goods |
