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90 Cards in this Set
- Front
- Back
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Define: Contract
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The contract is a promise/set of promises enforceable in the court of law or equity
-It is not a piece of paper -Some contracts are in writing to use for evidence -Not all contracts need to be in writing |
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T/F: Contracts start out as an offer. The offer turns in to a contract when offer is accepted.
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True
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Common Law of Contracts
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-Different states have different rules regarding different contracts
-It depends on which state, and their rules for contract laws. -There may be 50 different ways because 50 different states -Majority view: more than 25 states -Minority view: less than 25 states |
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Uniform Commercial Code (UCC)
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The only law that all 50 states have passed on a particular subject
-Adopted by every 50 states -Governs only certain kinds of contracts ex: -bank deposits (credit card, online banking), checks, endorsements -sales of goods (such as sell phones, cows, food, etc) what happens if you order 20 but only receive 10 -loans secured by personal property |
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What type of contracts are the only ones that the UCC doesn't cover?
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real estate and employment contracts
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Elements of a Contract: (1) Offer needs to be acccepted
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(1) Offer that needs to be accepted; becomes an agreement
-ex: can I sell you my car for $50,000 |
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Elements of a Contract: (2) Consideration
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(2) Consideration: something of value given in exchange for a promise-A consideration isn't good when someone is already under a duty to do.
-For example: "I'll give you $100, if you feed your child." Not a good consideration because the parents have the duty to support their child. -Anything involving $1 or more can be a contact. |
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Elements of a Contact: (3) Capacity
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(3) Capacity: Both sides/parties needs contractible capacity; needs to be adults and sane.
-Offers/acceptance need to be voluntary -Crazy/mentally impaired individuals are involuntary -Also, minors have limited contractional capacity. Minors can fully enforce contracts, but adults cannot. |
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Elements of a Contract: (4) A Lawful Purpose
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(4) A Lawful Purpose: needs to follow the law; not a crime.
-ex: money for cocaine, money to beat up someone or something that is a crime/against the law cannot become a contract. |
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Define: Imparadilecto
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Both parties/sides equally at fault
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The classification of contracts: (1) Unilateral or Bilateral
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Uni- or bi- is the number of sides making promises
Uni is one side making a promise; bi is both sides making a promise |
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Unilateral contract (aka simple contract):
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Offer of unilateral contract cannot be revoked once substantial performance has begun.
-Once you start washing my car, you cannot revoke the offer, it's too late to revoke offer. -Revoked at anytime unless substantial performance has begun, then offer becomes irrevokeable. -We don't have a contract unless it is fully performed. |
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Bilateral contract (aka complicated contract):
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Both sides exchange promises.
A promise to perform creates the contract. Doesn't have to be performed yet. -As soon as promises are exchanged, turns into enforceable contract. -Once contract is created, then both sides have promises or duties to perform. -ex: wedding vows- both exchange promises. In California, marriage is a contract. |
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T/F: Bilateral contracts give the parties much more protection than unilateral contract
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True
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Classification of contracts: (2) Formal vs. Informal Contacts
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-Some contracts require certain formalities: Some needs to be in writing, some need to be witnessed, notarized, etc.
If contract requires formality, then it is a formal contract. -Informal contract: contract which doesn't require any formality. Most contracts are informal, 99% of them are informal. -Formal contract isn't required, but it is a good idea to have it because it avoids any disputes later about what the agreement was. |
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Classification of contracts: (3) Express or Imply
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-Express means that a contract is spelled out in words, the words can be spoken, printed, faxed, emailed.
-Implied contract: where the agreement is applied by the conduct of the party. Instead of the words, it's what the people did to create the contract. ex: you hold your pitcher up for a waiter for more margarita. So your conduct implies that you offer to pay for more margarita. If you say you want more margarita from the waiter, then that is an express contract. ex: getting into a taxi cab, you imply to pay for the ride. |
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Classification of contracts: (4) Valid, Void, or Voidable
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-Valid contract: if it's not valid, then it is not a contract. Valid means where all 4 elements are present and there are no defects.
4 essential elements: Agreement, consideration, capacity, sanity/being an adult, lawful purpose. -Void contract: no contract at all. One involving a mentally impaired person or involving an illegal/unlawful purpose. ex: $10k for 10 pounds of cocaine. Nobody gets anything out of it. Courts not going to help with void contracts or unlawful purposes. -Voidable contract: appears to be valid but there's some defect. ex: A minor contract can be voidable by the minor but not by the adult. If minor doesn't void the contract then it is perfectly good contract. Voidable contracts carries with them rights and duties. They require that the person avoiding them to give back what they received. |
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Define: Agreement
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Both sides/parties have agreed on the same transaction.
-An agreement is almost always involves an offer and then accepted. ex: offered to have a car wash, my house painted, etc. It has to be accepted in order to be enforceable promises. -Offer is a promise to do or not to do something. Only enforceable if accepted. -If offeree/person offering changes any part of the offer, and it is not accepted, then it doesn't become a contract. |
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To become a valid offer, you need 3 elements: (1) Offerer must have a serious intention to be valid/bound, (2) terms of offer must be reasonably definite or certain, if someone doesn't perform then we need court figure out what damages/remedies are, (3) offer must be communicated to the offeree, and offeree must have actual knowledge of the offer. You can't accept an offer unless you know about it. ex: returning dog without knowledge of reward. Do not get the $500 for returning dog.
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T/F: Statement of intentions are not offers
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True.
ex: I intent to buy a new car. That doesn't mean I intent to buy a car from the dealership. Stating an intention, is not making an offer. |
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T/F: A statement of opinion is not an offer
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True.
ex: "I believe your home is worth $200,000. He isn't offering to buy your house for $200,000, he is just stating his opinion. Someone stating an opinion is not an offer. |
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T/F: Catalogs, Craigslist, Advertisements are not offers
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True
-Ad on craigslist that says $200 for lawn mower, it is not an offer. -They are an invitation for people to negotiate. Inviting people to make an offer for the lawn mower. |
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Possible outcomes for an offer that is communicated: (1) Revocation
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The offer or the person who made the offer can change his mind and can revoke the offer (to bring it back or resale) at any time before it is accepted
-Revocation is only effective when it is received by the offeree ex: I can make an offer to buy your house. Couple days later I can change my mind and make a revocation for a different offer. If the first offer is accepted, then the revocation cannot be made. |
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T/F: If an offer has an expiration date/deadline, that doesn't mean I have to leave it open until that date. It can be revoked at any time before the deadline.
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True
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Some offers cannot be revoked: (1) unilateral contract where performance has begun. The offer is irrevokable. It is too late. (2) Firm offer by merchants. Merchant makes offer to another merchant to provide a product for a certain price and has agreed to keep it open. (3) Option: where someone has paid money to someone for his promise to leave his offer open for an amount of time. (4) Rejection: the offeree saying 'no'. Is not defective until received by the other side. (5) Revocation: the offerer taking back his offer.
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Define: A counter offer
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the rejection of the original offer coupled with a new offer back. The counter offer needs to meet the same requirements as the original offer
-ex: I offer to buy your car for $10,000. person 2: no, I will offer to sell my car for $11,000. Person 1 can accept/deny, make another counter offer, or ignore it and not purchase it at all. |
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"Testing the waters"
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I offer to give you $10k for your car.
Person 2: I was hoping to get more. -It just means your disappointment. Not a counter offer. -A offer/counter offer needs to be a promise. A question is never a promise. "Would you buy my car for $11k?" It is just a question, or testing the water. |
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Termination by operation of law
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Some offers simply die because the law says it dies.
-The law says the offer is dead. |
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Incompetence of offer
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If i make you an offer, and you walk the crosswalk and get hit by the car, then the offer is terminated.
-The exception is an option (like with revocation) |
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Define: Supervening
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An offer which was legal when made, would become illegal because of the change in the law.
-ex: offer is at 10% interest. But law changes stating that interest over 8% is considered illegal. Then the offer is terminated. -If law changes when offer is pending, then offer is terminated. It becomes an illegal contract. |
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Define: Acceptance
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If an offer is accepted, then it changes from offer to contract. It becomes an enforceable contract.
-The offeree (person who receives the offer) do some act to signify his consent to the terms of the offer. -ex: shaking hands, or sign the contract -unilateral contract: acceptance is performance/performing the promise -Acceptance is effective upon dispatch, |
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The mailbox rule
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If I receive an offer, and I accept it. I sign it and I drop it in the mailbox. That's when the acceptance is defective. It is now a contract.
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Element of contract: Consideration |
something of significant value given in exchange for a promise OR bargained for value or for something. example: if professor gives promise to come very Tuesday night to teach. This is not a good contract because professor already has the duty to teach. |
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Preexisting duty rule: |
promise that someone is already under duty to perform is not good consideration. example: You pay 18 yr old to not drink alcohol this month for $100. He doesn't get $100 because it's illegal for him to drink. Problem with preexisting duty rule? example: If I pay you $500, can you do something else for me? --This is not a good consideration because you're already under duty to owe $1000. |
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Consideration can be: |
-money -property -goods (i.e. cars, cows, peanuts) -another promise (i.e. promise to pay you if you work for me) aka services -or to not do something |
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In order for a contract to be enforceable, it needs to: |
(1) benefit the promiser or (2) detriment (giving up something) the promisee example: I promise to pay you $200k for your house, if you sell it to me within 60 days. detriment: giving away your house benefit: receiving $200k |
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Case of Hamer vs. Sidway |
New York (1875) -Nephew turns 18 could legally smoke, gamble, etc. -Uncle doesn't want Nephew doing these things. Uncle offers $5000 for Nephew to not do these things until age 21 (unilateral promise). -Nephew became 21 and succeeded. He didn't do any of the things. Uncle said he will keep the $5000, but if Nephew really needs it then he will give it to him. -Uncle dies. -Uncle's children objected Nephew's claim for money. "He didn't suffer any legal detriment, so no money." -Court decided that Nephew is entitled to the money because he gave up the legal right to gamble, smoke, etc. So it is a detriment. -Nephew collected the money. Even though the Nephew is better off not smoking/gambling, he gave up a legal detriment. |
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Accord Satisfaction |
(1) needs to be a dispute (2) agreement on how to resolve dispute (3) agreement needs to be performed; must perform |
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Capacity
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-The ability of a person to enter in a fully/enforceable contract -Minors: have limited contractional capacity-Contracts is not fully enforceable because adults cannot void or create a contract with a minor -Mentally impaired people: have limited or no capacity |
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Minors Capacity |
Minors have limited contractional capacity -Contracts is not fully enforceable because adults cannot void or create a contract with a minor |
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Exception of minors: |
-Emancipated minor: "I don't want my parents to take care of me. I can take care of myself." -Someone who gets married before 18: is not a minor anymore in contract law purposes. -Minors engaged in businesses: they lose the protection/benefit of being a minor, dealing with issues of their business. |
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T/F: Minor has right to enter any contract that isn't illegal, such as drugs, sex, gambling, alcohol, etc. |
True |
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T/F: Minor has the right to avoid the contract. |
True The adult doesn't have the right to avoid the contract. |
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T/F: Minor contracts are voidable at the choice of the minor. |
True. The adult doesn't have the right to avoid the contract. |
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Disaffirming (minor) |
Minor has right to disaffirm the contract, just as long as contract hasn't been ratified. Contract is only ratified after he/she becomes an adult. Minor can disaffirm while a minor and a reasonable time after becoming an adult before it is ratified. |
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T/F: The law is created to discourage adults to have contracts with minor and adults to not take advantage of immature, young minors. |
True
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Implied ratification |
It is created by the conduct of the minor example: Contract with a gym membership. If a person continues to use the gym after turning 18 yrs old, then the person ratifies the contract. |
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Dawtson vs. Traitor |
Adult is entitled to make deductions made by the minor. Dawtson was 16 yrs old, and bought used two truck for $4500. He drives truck for 8/9 months and have a problem with engine. -Bad cylinder. Needs a replacement or engine will blow up. -He continues to drive and engine blows up. He was a minor so he could take tow truck back. -Dealer said "no" can't take it back. -Somebody does a hit/run on the truck. Now it is worth $500. -Judge agreed with minor to give back $4500. Dealer appeals. -The adult is entitled to deduct the damages made by the minor. It dropped in value due to $4000 in damages. So dealer is entitled to deduct and only give back $500 to minor. -The dealer sold the truck @ fair price. Fair price = fair car If he sold truck @ $10,000 but its worth $4500, then he would give back $6000. |
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T/F: Majority of the states: Full refund when minor returns what remains of what he received. Minority of states: The adult's right to deduct damages from the minor's refund. |
True |
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Contracts that minors cannot disaffirm: |
(1) Marriage contract: minor cannot stop being married, has to get a divorce. Must resolve marriage like an adult. The same rules apply: property, child support, etc. Just because he/she is minor, it cannot be voidable. (2) Bail agreement/Court agreement: example--speeding ticket. You cannot avoid those promises because you're a minor. (3) Student Loans (4) Military Enlistments (5) Bank Deposit Transactions/Withdrawals: but loans can be voidable |
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Mentally incompetent people: |
-Someone that a court has determined that he/she is mentally incompetent. -Not able to take care of their own business affairs. -Court appoints Doctor. Must exam a person to see if person is mentally impaired. -Court appoints a guardian for the mentally incompetent. -This mentally impaired person is known as a "Ward" |
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A Lawful Purpose |
The purpose of the contract must be lawful example: money to kill someone isn't lawful. example: if person goes to judge's house and offers $5000 to help win case. Judge accepts it. Both sides are at fault. Bribing is unlawful and accepting a bribe is unlawful. example: usury: charging more interest than law permits. Law states that no more than 10% interest. Lender charges 12% interest is at fault. Not the borrower. |
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T/F: Illegal contract is a gambling contract. This is a void contract. |
True |
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T/F: Illegal contract is unlicensed professionals. |
example: wants to be a doctor, barber, teacher, etc, it requires a license. -If you don't have proper license to perform certain practices/services, then that person is committing a crime. It's the unlicensed person committing the crime and not the clients. |
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T/F: Law is to protect the public from unlicensed, unqualified, incompetent people. |
True If unlicensed person was paid, then have to give money back to client. Unlicensed person has all duties under contract but no right. Person that we're trying to protect have all rights under contract, but no duties. Homeowner doesn't have to pay a penny. Unlicensed person is obligated to perform promises/acts/duties Whether homeowner knows.don't know that the person has a valid license, it's irrelevant. |
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Licensing statutes |
You need license to practice certain things example: if you want to be dentist, then you must have a proper license from the state. example: A building contractor license to be a plumber |
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T/F: Business license are not qualified to protect the people. Everyone pays same fees for the particular license. |
True |
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Contract to public policy: |
-agreements not to compete -agreements in restrain to trade -agreements to fix prices (fixing prices is against the law) example: Rockefeller owned all gas station companies so he could fix the prices because there was no competition. or having one brand of gas station in one city, not allowing competition. This is against the law/aren't enforceable. -if a business or professional practice agrees to not compete for a reasonable time and reasonable time/distance, then it is enforceable. |
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Exculpatory Clause |
-To let someone out of/waves any claim in advance example: when you go skiing, back of ticket shows that ski liftoff isn't liable for any injuries/deaths. -You ski @ your own risk. -If the contract involves a basic human activity, then the exculpatory clause is not enforceable. |
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Mistakes in material fact |
-If you and me think your farm has 80 acres, but it has 110 acres, then it is a mutual mistake. -Either side can void the contract -Mistakes in value doesn't count: example: if value of your house goes down, you can't resell it for more money. Must be a mistake within material facts. -Only sometimes material facts affects the value: |
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Scrivener's Errors |
If something has an obvious mistake, i.e math typo or miscalculation, then it is a mutual mistake. example: I offer to buy 10 computers that are sold @ $500 each, for a total of $25,000. There is an obvious mistake because 10 times 500 equals to $5000. |
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Raffles vs. Wichelhaus |
-English company agrees to buy cotton from India -The agreement is that: cotton is to be shipped on the next sailing ship from India to England. -England thought they were going to received the cotton by October. -Unfortunately there are 2 ships with the same name -The ship with cotton will arrive on December instead -So England bought cotton elsewhere -Then cotton from India arrived and they didn't want it anymore. -India sued England -Court ruled it was a mutual mistake. |
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Fraudulent Misrepresentation |
-There must be misrepresentation of material fact. -The person making a false statement knows of the false statement with intent of purpose. -The innocent person can void the contract by going to court of equity to undo transaction and get back whatever he gave/give back whatever he received. -Only the innocent person has right to resend the contract. |
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Undue Influence |
One person taking advantage of a position of power over another person. -The power of persuasion; someone in position of trust to enter in a contract that doesn't make sense or very one sided. example: If I borrow money from a client, then that's undue influence. |
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Duress |
When a person obtains contract by a threat/harm example: if you don't agree to this I'll shoot you. Only the innocent party can avoid the contract. The remedy is rescission: whatever he gained he must give back |
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1677: An Act to prevent frauds & perjury |
There are certain kinds of contracts that need to be in writing, signed by the party sought to be charge (the one we want to force contract against) example: if a farmer waned to sell me his farm, he must sign & agree to terms |
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Types of contracts that are required to be in writing, and signed by the party sought to be charged |
(1) Contracts involving land (2) Long term contracts: long term contracts are contracts that cannot be finished within the 1st year of making the contract (3) Promises to answer for a debt of another: such as a guarantee or co-signer (4) Promises made in compilation of marriage: such as prenup. Whoever wanted to enforce contract against needs to be signed a few days before wedding by both sides. This is a law in California. (5) Contracts for the sales of goods over $500: such as tangible products--things we can touch or see (i.e cars, horses, furniture, etc). |
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Exceptions to the statute of frauds |
(1) Partial Performance: excuses the signing/writing example: Someone sells his house by himself and doesn't use a Realtor. Buyer puts $10,000 down payment. Buyer moves in. If seller wants his house back down the road and says there was no contract. -The seller would lose, because buyer has been paying taxes & mortgages. If there was no down payment or partial performance, then the buyer loses. THERE NEEDS TO BE PERFORMANCE. |
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Privity |
Contracts were private -It only binned the people who were parties to the contract -nobody else has a business in this contract However, sometimes it's necessary for others to be involved in a contract example: if you buy a new car and make a deal with a car dealer, and you agreed to pay so much a month for the car. Then a bank should be involved. assignee: bank assignor: buyer of car |
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T/F: Assignment can't change the terms of a contract |
True |
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Assignment is with/without recourse: |
assignee: bank assignor: buyer of car Recourse: if performance doesn't occur as promised, then the assignor (buyer of the car) must pay the assignee (bank) If assignment doesn't specify with/without recourse, then it is assumed that it is with recourse. Most contracts are without recourse. Contracts with recourse deals with: mortgages, checks, used-car loans, etc. |
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T/F: Assignment is usually endorsed on the back of a contract |
True |
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The American Rule |
The assignment that received the first assignment is entitled to the money. "first in time, is first in right" example: If someone assigned two different banks. The bank 1 receives the money. The assignment to bank 2 means nothing. Bank 2 has no rights. The assignee (bank) has to promptly notify the person that they will accept the money. Whoever sits on the rights, loses it in England. |
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Rights that cannot be assigned: |
(1) public benefits or a statute prohibits assignment example: medicare: you can't sell your medicare card to someone so they can use your benefits. (2) Rights under personal service contracts: example: If I hire a surgeon for me, the surgeon cannot send someone else to do the operation because it was meant for me; it was personal. |
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Delegation of Duties (opposite of assignments): |
not favored under the law (1) Construction contracts: -general contractor promises he will build the house by certain date for $200k. -contractor is going to delegate his duty to other people; he pays a plumber, makes a contract with them. -general contractor is obligated to pay all sub-contractors -Delegation of duties doesn't diminish any duties. If plumber doesn't finish the job, then it's up to contractor to do the job. |
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Duties cannot be delegated when: |
(1) There is a personal service contract example: director pays Tom Cruise $8 million to play in a movie. Tom cruise cannot pay someone to act for him. (2) Performance will be different: it's a risk of non performance example: If I sign a lease for 5 years for an office, then I cannot delegate any duties to pay a lease. |
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Novation |
-One party substitutes someone new in replace of one of the original parties -Always involves a delegation of duties example: if tenant signs 1 year lease for an apartment. If they move out, they'll get sued for the next 10 months. -You can't give the keys to somebody to pay rent. That is a breach of the lease. -If tenant #2 doesn't pay rent, then it is tenant #1 fault. Solution is novation: tenant #1 takes tenant #2 to landlord saying "he is going to take over leads with your permission". If landlord agrees, then it is fine. Tenant #1 gets released from its duties for the next 10 months. Tenant #2 is in contract with landlord with his consent, Tenant #1 is excused. |
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Breach of contract: |
When someone breaks promise and doesn't perform |
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Conditions |
Something that needs to happen before/after that excuses performance |
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Condition precede: |
Something that needs to happen before duty to perform under the contract example: Offer to buy house for $200k. Seller agrees. Buyer wants to include # of conditions with offer: such as inspections (no termites, damages), condition to be approved of a loan, zoning (you want to build/add something on the property. Conditions are important in real estate & insurance |
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T/F: If you put conditions in the contract, and they're not performed, then you have no obligation to perform the contract. You won't get in trouble |
True |
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Condition Subsequent |
Occurs after performance has begun excuses other performance -No further obligation to perform example: divorce, with children. Agree on obligation to pay for child support. Condition subsequent: the child turns 18 yrs old. The obligation stops because something happens in the future. -Condition subsequent is very common in employment contracts: they lose their license, then that's a conditions subsequent. |
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Concurrent conditions |
Each side has to perform example: FedEx won't give me my delivery if I don't give them money, so no one is at fault. |
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Material Breach (aka major breach) |
Leads to two consequences: (1) non breaching party excuses from future performance (2) non breaching party may be entitled to remedy example: missing a toilet, forget to put breaks on car |
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Minor Breach |
Minor breach simply suspends obligation to perform equal to the amounts of the breach example: missing a microwave, forget to paint a stripe on the car Minor breach is substantially performed |
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Anticipatory breach |
Someone in a party announces in advance that he will not perform example: sign a contract to pay rent. Let landlord know ahead of time -This reduces damages/risk for being responsible for damages or can minimize the damages |
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Discharge by agreement |
Performance doesn't need to take place as originally planned (1) Mutual rescission: they can agree to end the contract or undo the performance. Everyone gives back what they received and the deal is off. (2) Novation: bring in new person to perform and everyone agrees on it (3) Accord and Satisfaction: agree to some different performance |
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Discharge by Operation of law |
Law says contract has been discharged (1) Bankruptcy: one files bankruptcy, then discharges obligation to pay and perform. Breaches contract and doesn't have to pay. (2) Commercial Impractical: have contract for you to paint my house. Then there's an earthquake and house is in pieces. It doesn't make any sense to perform contract so it is discharged. (3) Impossibility of performance: You might die before painting the house. Dying does not excuse duty to pay money, but it does excuse duty to perform. If you owe me money, but I die. You still owe somebody money, such as my family/spouse. (4) Frustration of purpose: purpose of contract has been frustrated & doesn't require performance. Example: earthquake ruins my house. Goals cannot be obtained. |
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Legal Remedy: compensatory damages |
Loss of benefit of the bargain. -awarded by the court of law example: You buy a house for $100k, but it's worth $125k. After you sign contract, you find out it's worth more than that. -The difference between contract price ($100k) and market price ($125k), the seller breaches. $25k goes to the buyer. If difference between contract price and market price is zero, then there is no issue. |
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Equitable Remedies: |
(1) rescission: minor mistakes, fraud, etc. (2) injunction: example: restraining order, or not to do something (3) reformation: to rewrite a contract to conform/agree to the intent of the parties. Not to change your mind about the deal. |
