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134 Cards in this Set
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Contract |
a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty` |
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Agreement and what does it consist of? |
consists an offer and acceptance. Started by one party, called the offeror, to enter into a contract and an acceptance of the terms of the offer by the other party, called the offeree |
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Elements of a contract in order |
Agreement, Consideration, Contractual compacity |
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Consideration |
the bargained-for-exchange or what each party gets in exchange for his or her promise under the contract. |
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Contractual Capacity |
the legal ability to enter into a binding agreement |
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Who do not have contractual capacity? |
Most adults over the age of majority have capacity; those under the age of majority, people suffering from mental illness, and intoxicated persons do not |
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Objective Theory of Contracts |
we base the existence of a contract on the parties’ outward manifestations of intent and we base its interpretation on how a reasonable person would interpret it |
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What is relevant in the objective theory of contracts |
The subjective intent of parties is not usually relevant; what matters is how they represented their intent through their actions and words |
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Bilateral Contract |
a promise in exchange for a promise. As soon as the promises exchanged, a contract is formed and the parties’ legal obligations arise |
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Unilateral Contract |
requires performance in order to form a contract (i.e. a promise + a requested action). The offeror wants the offeree to do something, not promise to do something |
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Express Contract |
the terms of the contract are all clearly set forth in either written or spoken words |
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Implied Contract |
arise not from words but from the conduct of the parties |
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Void Contract |
not a contract at all. Either its object is illegal or it has some defect so serious it is not a contract |
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Voidable Contract |
one or both of the parties has the ability to either withdraw from the contract or enforce it. |
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Option Contract |
the offeree gives the offeror a piece of consideration in exchange for holding the offer open for a specified period of time |
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Revocation |
the offeror can revoke the offer at any time unless the offeree entered into an option contract with the offeror. Revocation is effective when the offeree receives it |
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Rejection |
another way to terminate the offer, effectuated by the offeree. Regardless of how long the offer was stated to be open, once the offeree rejects it, it is terminated |
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Counteroffer |
an offer made by an offeree to his offeror relating to the same matter as the original and proposing a substituted bargain differing from that proposed in the original offer. A counter offer terminates the original offer |
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Destruction or Subsequent Illegality of the Subject Matter |
if the subject matter of the offer is destroyed or becomes illegal, the offer immediately terminates |
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Lapse of Time |
if the offer states it will be held open for only a certain time, it terminates when that time expires. In the absence of such a time condition, the offer will expire after the lapse of a reasonable amount of time |
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Authorized Means of Acceptance |
if the offer specifies that acceptance must be communicated by a specific mode,that mode is the only means for accepting the offer. If no mode of communication is specified in the offer, any reasonable means of acceptance is valid |
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Unauthorized Means of Acceptance |
when an offer specifies that acceptance must be communicated by a particular mode, no other form of acceptance is valid. |
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In an Unauthorized means of Acceptance which contract can only performance by the offeree constitutes a valid acceptance |
Unilateral Contract |
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Consideration |
what a person will receive in return for performing a contract obligation |
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4 types of Considerations |
A benefit to the promisee A detriment to the promisor A promise to do something A promise to refrain form doing something |
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How does the court feel about the Adequacy of Consideration |
The court seldom considers adequacy of consideration The court does not weigh whether you made a good bargain |
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Exception of Adequacy of Consideration |
if the court believes fraud or undue influence occurred, the court may look at adequacy of consideration |
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Illusory Promise and an example |
Not a promise or a consideration. Shawn offers to sell Molly his skis for $300, and Molly responds “I’ll look at them in the morning, and if I like them, I’ll pay you.” |
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Enforcement of Promise |
For a court to enforce a promise, both parties must provide valid consideration, consideration by one party only is insufficient to support an enforceable contract |
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Preexisting Duty Rule |
Performance of a duty you are obligated to do under the law is not consideration Performance of an existing contractual duty is not good consideration |
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Two types of Partial Payment of a Debt |
Liquidated debt and Unliquidated debt |
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Liquidated Debt |
no dispute that money is owed or how much—debtor must pay the full amount even if agree to lesser sum |
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Unliquidated Debt |
the parties either disagree about whether money is owed or dispute the amount—the parties can settle for less than the full amount of they enter into an accord and satisfaction |
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Accord & Satisfaction |
Settling to pay an unliquidated debt for less than the full amount |
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What does the Accord & Satisfaction require? |
1) The debt is unliquidated 2) The creditor agrees to accept as full payment less than it claims is owed 3) The debtor pays the amount they have agreed on |
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Capacity and who has it? |
The third required element of a legally binding contract A person who has legal capacity has the mental ability to understand his or her rights and obligations under a contract and therefore presumably to comply with the terms |
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Emancipation |
In most states a person is given full legal capacity to enter into contracts when he or she becomes emancipated before reaching the age of majority |
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When does Emancipation occur? |
When a minor’s parents or legal guardians give up their right to exercise legal control over the minor, typically when the minor moves out of the parents’ house and begins supporting himself or herself |
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Disaffirmance by a Minor and who has the right? |
Because their contracts are voidable, minors have the right, until a reasonable time after reaching the age of majority, to disaffirm or void their contract It is only the minor who has the right to disaffirm, never the adult with whom the minor entered into the agreement |
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Ratification by a Minor |
Once a person reaches the age of majority, he or she may ratify, or legally affirm, contracts made as a minor |
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Express Ratification |
after reaching the age of majority the person states orally or in writing that he or she intends to be bound by the contract entered into as a minor |
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Implied Ratification |
occurs when the former minor takes some action after reaching the age of majority consistent with the intent to ratify the contract |
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Mentally Incapacitated Persons |
Contracts of a person with limited mental capacity can be valid, voidable, or void, depending on the extent of the mental incapacity |
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How does a person with delusions deal with entering a contract? |
If a person suffers from delusions that may impair his judgment but he can still understand that he is entering into a contract and understand his obligations under the contract, his contract is valid; if his delusions prevent him from understanding that he is entering into a contract or the nature and extent of his obligations under the contract, his contract is voidable; and if he has been adjudicated insane, his contract is void |
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Intoxicated Persons |
When the intoxicated person becomes sober, the contract can be ratified or disaffirmed; however, the courts will fairly liberally interpret behavior that seems like ratifying the contract once the intoxicated person becomes sober |
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What happens if a contract is disaffirmed on the basis of intoxication? |
each party must return the other to the condition he or she was in at the time they entered into the contract |
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Agreement to Commit a Crime or Tort |
Contracts cannot be for illegal purposes or require illegal acts for performance Any agreement to commit a crime or tort is illegal, void, and unenforceable |
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Unconscionable Contracts |
Agreement in question is so unfair that it is void of conscience and may be unenforceable |
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What does unconscionable contracts require? |
1) procedural unconscionability and 2) substantive unconscionability |
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Legal Assent |
A promise the courts will require the parties to obey |
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Absence of Legal Assent |
Without legal assent the contract may be voidable, a circumstance that can cost a business large profits when the transaction is significant |
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What happens when a voidable contract is rescinded or canceled? |
It is permitting the person who canceled the contract to require the return of everything she gave the other party |
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Unilateral Mistake |
Because courts are hesitant to interfere when one of the parties has a correct understanding of the material facts of the agreement, a unilateral mistake does not generally void a contract |
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Mutual Mistake |
When both parties are mistaken about a current or past material fact, either can choose to rescind the contract Rescission is fair because any agreement was an illusion: Ambiguity prevented a true meeting of the minds |
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Innocent Misrepresentation |
results from a false statement about a fact material to an agreement that the party making it believed to be true, and innocent misrepresentations permit the misled party to rescind the contract |
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Negligent Misrepresentation |
in some contract negotiations, one party makes a statement of material fact that he thinks is true, but if he could have known the truth by using reasonable care to discover or reveal it and fails to do so, his statement is a negligent misrepresentation |
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If fraud is apart of negligent misrepresentation what happens? |
Any fraud on the part of a party to a contract provides a basis for rescission |
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Fraudulent/intentional misrepresentation |
is a consciously false representation of a material fact intended to mislead the other party |
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Undue Influence |
Refers to those special relationships in which one person takes advantage of a dominant position in a relationship to unfairly persuade the other and interfere with the person’s ability to make his or her own decision |
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Duress |
Occurs when on party threatens the other with a wrongful act unless assent is given Such assent is not legal assent because coercion interferes with the party’s free will |
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What must happen if the courts rescind the agreement due to duress? |
For the courts to rescind the agreement, the injured party must demonstrate that the duress left no reasonable alternatives to agreeing to the contract |
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Statute of Frauds |
State laws requiring certain types of contracts must be in writing to be enforceable |
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Statute of Frauds are intended to? |
1) ease contractual negotiations by requiring sufficient reliable evidence to prove the existence and specific terms of a contract 2) present unreliable oral evidence from interfering with a contractual relationship 3) prevent parties from entering into contracts in which they do not agree |
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5 types of Contracts Falling within the Statute of Frauds |
1) contracts whose terms prevent possible performance within one year 2) promise made in consideration of marriageo 3) contracts for one party to pay the debt of another if the initial party fails to pay 4) contracts related to an interest in land 5) under the Uniform Commercial Code, contracts for the sale of goods totaling more than $500 |
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Prenuptial Agreement |
An agreement two parties enter into before marriage that clearly states the ownership rights each party enjoys in the other party’s property |
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Exceptions to Statute of Frauds |
Partial Performance in a land-sale contract |
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Explain Partial Performance in a land-sale contract |
If the buyer in an alleged contract for the sale of land has paid any portion of the sale price, has begun to permanently improve the land, and/or has taken possession of it, the courts will consider the contract partially performed and this partial performance may amount to proof of the contract despite the lack of a formal writing sufficient to satisfy the statute of frauds |
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Sufficiency of the Writing generally requires and what do land sale contracts require extra? |
The names of the parties, The subject matter, The consideration given, All relevant contractual terms, The signature of at least the party against whom enforcement is sought NOTE: land-sale contracts require additional terms such as identifying the land with a degree of specificity |
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Parol Evidence Rule |
A common law rule stating that oral evidence of an agreement made prior to or contemporaneously with the written agreement is inadmissible when the parties intend to have a written agreement be the complete and final version of their agreement |
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Integrated Contracts |
Written contracts within the statute of frauds intended to be the complete and final representation of the parties’ agreement, thus precluding the admissibility of parol evidence other than in certain enumerated exceptions |
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Merger Clause |
One way parties can indicate their desire to create an integrated contract is through the use of a merger clause |
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What does a Merger clause state? |
A merger clause explicitly states that the written contract is intended to be the complete and final version of the contract between the parties and that other possible agreements between the parties, besides the one in question, are not part of the final written agreement |
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Obligors |
contractual parties who agreed to do something for the other party |
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Obligees |
contractual parties who agreed to receive something form the other party |
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Assignment |
The transfer of rights under a contract to a third party |
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Delegator |
is the party to a contract who transfers his or her duty to a third party |
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Delegatee |
is the party not in privity to a contract who is the recipient of a transfer of duty to a contract |
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What happens after a delegation? |
although the delegatee is bound to perform, the delegator remains liable if the delegatee fails to perform |
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Third-Party Beneficiary and what is it also called? |
Created when two parties enter into a contract with the purpose of benefiting a third party, called the intended beneficiary |
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What are the terms on naming a beneficiary? |
The beneficiary need not be named in the contract, as long as the terms of the contract or events occurring after its creation make it clear who he or she is |
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Creditor Beneficiary |
a third party that benefits from a contract in which the promisor agrees to pay the promisee’s debt |
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Donee Beneficiary |
third party who benefits from a contract in which the promisor agrees to give a gift to the third party |
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Incidental Beneficiary and what cant they do? |
when the contracting parties do not intend to benefit someone but unintentionally do, that third party is an incidental beneficiary An Incidental Beneficiary may not sue to enforce the contract |
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Vesting |
an intended beneficiary cannot sue to enforce his/her rights to the contract until they vest, or mature such that he/she can legally act upon them |
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Before a third party’s rights have vested what can parties do? |
the original contracting parties can make changes to the original contract without the third party’s permission |
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Discharge |
When a party’s obligations under a contract are terminated, the party is said to be discharged |
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Condition Precedent |
the party’s duty to perform arises after a particular event occurs; if the event never occurs, the party’s duty to perform never arises and the parties are thus discharged from the contract |
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Conditions Subsequent |
the party has a duty to perform until a future event occurs that discharges the party |
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Conditions Concurrent |
the party’s duty to perform requires that each party perform for the other at the same time |
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Satisfaction Contracts and what is considered and must be met? |
The party is not discharged from the contract until the other party is satisfied with performance Satisfaction is considered an express condition that must be met before the other party’s obligation to pay for the performance arises |
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Anticipatory Repudiation |
When breaching party conveys an express indication of his/her intent to no longer perform or by taking an action that would be inconsistent with his/her ability to carry out the contract prior to the time when such performance is due |
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What does a Anticipatory Repudiation allow? |
Allows the nonbreaching party to be discharged from his/her obligations under the contract and is free to go ahead and sue for the breach even though performance is not yet due |
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Rescission and Restitution |
the termination of the contract and the return of the parties to their precontract status |
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Whats an equitable remedy? |
Rescission and Restitution |
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Compensatory Damages |
damages designed to put the plaintiff in the position he or she would have been in had the contract been fully performed |
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Nominal Damages |
token damages that merely recognize that the plaintiff had been wronged |
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Punitive Damages |
damages designed to punish the defendanto Liquidated Damages—damages specified in advance of the contract |
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Mitigation of Damages |
the duty to mitigate one’s damages is that plaintiff must demonstrate that he/she used reasonable efforts to minimize the damages resulting from the defendant’s breach |
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Moral Hazard and an example |
Suggests that individuals who are insulated from risk sometimes behave differently
If person has car insurance he/she may be careless with regard to locking the car because the insurance company covers the risk of theft |
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Risk and Risk management |
the potential for loss and the transfer and distribution of risk
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Effective Date for the Application for insurance
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the date the insurance policy becomes effective
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Binder for the Application for insurance |
an agreement that gives temporary insurance until the company decides to accept or reject the insurance application |
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Incontestability Clause for Insurance Contract
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ensures that the insurance company cannot contest the statements made in an insurance application after a certain period of time
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Antilapse Clause for Insurance Contract |
provides a grace period for the insured to pay the premium |
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Appraisal Clause for Insurance Contract |
allows the insured party and the insurer to select a disinterest appraiser for a second opinion on damages |
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Arbitration Clause for Insurance Contract |
provides that disputes must be submitted to arbitration |
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Individual Insurance |
purchased by the insured party |
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Group Insurance |
purchased by a party that is neither the insured party not the insurer |
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Personal Insurance |
covers an individual’s life or health |
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Commercial Insurance |
covers business interests |
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Casualty Insurance |
protects a person from accidental injury |
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Liability Insurance |
Protects your business from tort liability to third parties |
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Commercial General Liability Policy |
protects a business against a broad range of risks |
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Product Liability Insurance |
covers the cost of recalling and replacing products |
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Professional Insurance |
protects professionals from suits by third parties who claim that the professional was negligent in his or her job performance
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Whole-Life Insurance |
provides protection for the entire life of the insured has cash surrender value |
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Term-Life Insurance |
provides coverage for a specified term. A beneficiary is paid only if the insured dies during this term doesnt have cash surrender value |
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Bankruptcy Relief Chapter 7 |
sale of debtor’s assets by trustee and the distribution of money to creditors |
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Bankruptcy Relief Chapter 11 |
reorganization of the debtor’s financial affairs under the supervision of the bankruptcy court |
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Bankruptcy Relief Chapter 13 |
reorganization of an individual’s debts |
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Bankruptcy Law |
type of federal law; however, state laws regarding property and debts may affect the bankruptcy proceeding |
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Chapter 7 in Bankruptcy Law |
The most familiar type of bankruptcy is liquidation, which is sometimes called a straight bankruptcy |
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When does liquidation occur in chapter 7 in bankruptcy law |
when a debtor turns over all assets to a trustee, an individual who takes over administration of the debtor’s estate |
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Voluntary Liquidation Proceeding |
when the debtor decides to file for bankruptcy, he/she files a voluntary petition |
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Involuntary Liquidation Proceeding |
if the debtor is not paying debts as they come due, creditors can attempt to force the debtor into bankruptcy by filing an involuntary petition |
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Automatic Stay |
Once a petition, voluntary or involuntary, is filed, the code provides for an automatic stay, or moratorium, for almost all creditor litigation against the debtor During the stay, creditors cannot bring or continue legal action against the debtor or his property |
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Discharge |
A written federal court order signed by a bankruptcy judge stating that the debtor is immune from creditor actions to collect debtso If a debtor has honestly dealt with his/her creditors during the bankruptcy proceedings, the debtor is likely eligible for a discharge of his/her remaining debts |
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Reaffirmation of Debt |
Sometimes a debtor wishes to repay a debt even though the debt can be discharged |
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Chapter 13 Bankruptcy Eligibility |
o Individuals exclusively; have regular income, owe less than $336,900 for fixed unsecure debts or $1,010,650 for fixed secure debts |
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Is a promise enforceable? |
No but a contract is |
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Without legal assent the contract may be what?
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voidable |
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Which one of these do need to be in writing for contracts? 1) Related to buying land 2) Marriage 3) Over 1 year performance 4) Leasing of property |
Leasing of property |
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What type of contracts within the statute of frauds intended to be the complete and final representation of the parties’ agreement
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Written contracts or Intergrated contracts |
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When can a third party sue? |
once their rights vest |
