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25 Cards in this Set
- Front
- Back
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A contract is the result of offer and acceptance
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1. The offeror makes offer to offeree
2. Offeror may revoke the offer 3. Offeree may accept or reject the offer |
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Three elements of an offer
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1. Seriously intended
• Offers made under emotional stress are not offers 2. Communicated a. Only the offeree can accept the offer b. Cannot assign an offer 3. Definite in terms a. Must include enough information so you know the basic deal b. If missing terms, the court will create: (1) Price = Reasonable price (2) Time = Reasonable time (3) Place = Seller's place of business |
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Invitation to make an offer
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1. May appear to be offers, but are not offers
2. Examples: Price tags, price quotations, mislabeled items, and advertisements 3. Exception: An advertisement offering a reward is an offer • If offeree did not see the ad, the offeror not required to pay because there is no communication, therefore, no offer. |
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Characteristics of Acceptance
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1. Must be unconditional; accept offer exactly the way it was made
a. Change in terms is a counteroffer b. A counteroffer is a new offer; offeree becomes counterofferor c. A counteroffer kills or terminates the original offer d. Inquiries are not counter offers; they do not terminate an offer e. For the CPA exam, counteroffers apply only to real property and employment contracts 2. If the item was not ordered, silence is not an acceptance 3. Cannot assign an offer |
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Termination of an Offer
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1. Counter offer
a. Offeree becomes offeror b. Counteroffers must be received c. For the CPA exam, applies to real estate and employment contracts, not sale of goods 2. Rejection • An offer must be received 3. Revocation: Offeror takes back the offer a. Revocation must be received before offer is accepted by offeree b. Can accept any offer before it is revoked c. Can revoke any offer before it is accepted 4. Indirect revocation: Offeree learns of sale to third party 5. Lapse of time 6. Death or insanity a. Death does not terminate a contract b. Exception: Death terminates a personal service contract 7. Destruction or sale of subject matter |
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Offers that Cannot be Revoked
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Option contract: Offeree gives consideration in exchange for promise to hold offer open
a. Offeror cannot revoke during the option period b. Offeror cannot revoke an option contract even if a counter offer or rejection is made Firm offer: Merchant’s written promise to keep an offer open. (Solely for sale of goods.) a. Applies only to personal property b. Consideration is not required |
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Acceptances Become Effective
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1. Specifications of offer
2. Mailbox rule (early acceptance rule): Offeree uses the same method or equal fast method as the offeror, the acceptance is legally valid when sent a. Effective when received: revocation, offer, counter offer and rejection b. Only an acceptance can be effective when sent under the mailbox rule |
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Types of Contracts
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1. Bilateral = Promise for a promise
2. Unilateral = Promise for an act (typically a reward) 3. Executed = Fully performed 4. Executory = Not fully performed 5. Valid = Fully enforceable 6. Voidable = Valid, but one of the parties can set it aside 7. Void = No legal effect; cannot collect |
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Elements of Fraud
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Actual fraud: Must show all five for a voidable contract
Actual Fraud (MS RID) M Misrepresentation S Scienter (intent to deceive) R Reliance I Intent to rely D Damages 2. Constructive fraud: Must show all five for a voidable contract Constructive Fraud (MR RID) M Misrepresentation R Reckless disregard for the truth (scienter) R Reliance I Intent to rely D Damages 3. Innocent misrepresentation a. Not actual or constructive fraud b. Can avoid the contract because the scienter element is missing c. Cannot sue for damages 4. Void Contract a. Has no legal effect b. Cannot sue for damages 5. Covenant (promise) not to compete a. Cannot restrain trade; contract does not exist b. If restraint is reasonable, courts will enforce 6. Exoneration clauses a. Usually void; courts generally will not enforce b. Cannot completely remove liability for negligence |
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Licenses
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1. Regulatory (Example: Real estate, doctor or dentist)
a. Purpose is to protect the public b. Without the license, the contract has no legal effect 2. Raise Revenue (Example: Fishing license) a. Purpose is to earn income b. Without the license, the contract is valid |
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Contracts that must be in writing
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a. Consideration of marriage
b. Real estate, unless buyer enters into possession c. Impossible to perform within one year (computed from date of agreement) d. Sale of goods of $500 or more e. Promise to answer for the debt of another (secondary promise) f. Promise by executor to pay |
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Statute of Fraud:
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Statute of Frauds (GRIPE + Marriage)
G Sale of goods R Real estate, unless buyer enters into possession I Impossible to perform P Promise to answer for the debt of another (secondary promise) E Promise by executor to pay + Marriage contract |
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Writing
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a. Must include major terms
b. Price, time of delivery, and place of delivery are not essential c. Must be signed by only one party: If signature of only one party, enforceable to that party d. Exception: Contracts relating to sale of goods |
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Minors
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1. Age of consent is 18 in most states
2. Contract is generally voidable 3. Can disaffirm contract while a minor or within one year after becoming an adult 4. After you become an adult (majority), can ratify the contract by conduct, actions, selling the goods, or keeping the goods 5. Ordinarily cannot ratify a contract while a minor 6. If you receive necessities of life, must pay reasonable value 7. If you misrepresent age, can still disaffirm the contract but can be sued for fraud |
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Mistakes
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1. One sided = Unilateral mistake
a. Effect on contract: None b. Person who makes mistake is bound by the contract unless offeree knows of, or should have known of the mistake 2. Two sided = Mutual mistake • Effect on contract: No contract |
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Parole Evidence Rule:
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1. If you have a written contract, you cannot change it by one (oral or written) made prior or at the
same time 2. Can modify the contract with a later contract 3. Clarifying ambiguities or fraud does not violate the rule |
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Third Party Beneficiaries
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1. Donee = Receives consideration by way of a gift. Can enforce contract as if a party to it
2. Creditor = The party who will receive the money from a 3rd party. Can sue debtor or the 3rd party 3. Incidental = Does not usually stand to gain from the contract. Has no rights at all |
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Novation: Substitution of the Debtor
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1. Creditor releases original debtor
2. Can be either oral or written unless for real estate |
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Assignment of Contracts
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1. Assignment of rights: Rights to receive money
2. Delegation of duties: Responsibility to ship goods 3. Nonassignable: Cannot delegate duties a. Personal service contracts b. Substantial changes to the contract |
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Consideration
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1. If you give up a legal right (something you’re free to do) while relying on a promise, that promise
is supported by consideration 2. No consideration is needed for firm offers 3. Consideration must be legally sufficient 4. Mutuality of obligation is consideration (A promises B; B promises A) 5. No consideration is needed for charitable donations |
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No Consideration Exists: Do not have to pay
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1. Promise is made after the act is done
2. Pre-existing duty (something you’re legally obligated to do) |
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Liquidated Damages (Stipulated in advance in contract)
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1. If reasonable, court will enforce
2. If unreasonable, court will treat as penalty and not enforce |
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Substantial Performance (Real estate construction contracts only)
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1. Court will deduct damages for performance not completed
2. Does not apply to sale of goods |
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Anticipatory Breach/Anticipatory Repudiation (Breach in advance of due date)
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• Innocent party may sue immediately or on the due date
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Specific Performance (Compel a person to carry out a contract)
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1. Apples to unique goods and real estate
2. Does not apply to personal service contracts |
