Cpcu 530 Ch 2

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Contract

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is an “agreement enforceable by lawan accepted promise to do or forebear” (Oxford English Dictionary).

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Promisor

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makes a contractual promise.

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Promisee

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receives a contractual promise.

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Privity of contract

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refers to the relationship between the parties to the contract.

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Third

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party beneficiaryis not a party to the contract, but is its intended beneficiary.

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Breach

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is the failure to perform a contractual obligation.

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Default

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is the failure to perform a contractual promise.

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Agreement

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requires offer and acceptance.

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Capacity to contact

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is the contractual competency or the legal ability to enter into contracts.

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Competent parties

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have the legal capacity to contract; competency is presumed unless impairment is obvious.

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Bilateral contract

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requires the exchange of contractual promises.

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Unilateral contract

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requires the exchange of a promise for an act.

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Executed contract

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is a completed contract.

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Executory contract

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is an uncompleted contract.

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Express contract

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is evidenced by written or spoken words.

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Implied contract

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may be impliedinfact or impliedinlaw.

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Implied

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infact contractexists when the parties ex press assent other than by written or spoken words.

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Implied

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inlaw contractexists when the law creates a legally enforceable obligation between parties even though they have not reached a contractual agreement.

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Void agreement

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has no legal effect and never existed before the eyes of the law; examples: illegal contracts and contracts with the insane.

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Voidable contract

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is valid except that one of the parties may legally renounce or rescind it; examples: contracts with minors and contracts induced through fraud or duress.

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Offer

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is a promise conditioned on a specific return promise, performance, or payment.

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Offeror

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makes an offer.

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Offeree

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receives an offer.

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Counteroffer

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is an offer by the offeree that is materially differs from the original offer; rejects the original offer and makes a new offer.

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Acceptance (of an offer)

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requires a solicited, specific, and unconditional return promise, performance, or payment.

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Forbearance

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is the nonperformance of an act.

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Substantial performance

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involves more than mere preparation and suspends the offeror’s right to revoke a unilateral contract offer.

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Competent party

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has the legal capacity to enter into a contract.

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Incompetent parties

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include minors, the insane, the intoxicated, and artificial legal entities (corporations) all of whom have either no or limited contractual capacity.

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Restitution

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makes an injured party whole again.

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Necessaries

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are a minor’s needs for his station: food, medical care, shelter, clothing, and education; minors may not use their minority to avoid contracts for necessaries.

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Ultra vires

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(Latin. “beyond the powers”)refers to acts that go beyond a corporation’s corporate powers.

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Consideration

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requires either legal benefit to the promisor or legal detriment to the promisee.

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Good consideration

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includes love and affection; will support an executed gift, but not a contract.

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Valuable consideration

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includes a counterpromise, an act, a forbearance, money, or goods; is needed to support a contract.

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Gratuitous promise

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is a promise not supported by valuable consideration and, thus, is not an enforceable promise; see promissory estoppel.

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Accord and satisfaction

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is an agreement to accept partial payment and something else of value to discharge a debt; example: agreement to substitute a slightly different performance (accord) and performance of that substitute agreement (satisfaction).

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Promissory estoppel (as contractual considera

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tion)holds that if A makes a gratuitous promise to B and B, relying on A’s promise, acts on that promise to his detriment, then A is prevented from claiming lack of consideration from B and being freed of his promise.

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Insurable interest

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exists if one would suffer a financial loss from the damage, destruction, or disappearance of property.

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Usury contract

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involves a loan with higher rates of interest than allowed by law.

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Negligence

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is the failure to use the degree of care that a reasonable person would use under similar circumstances to avoid harming others.

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Exculpatory clause

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limits or eliminates a party’s negligence liability to another party to the contract.

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Noncompete agreement

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is an agreement not to engage in a competitive activity or business in a specified geographic area during a specified period.

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In pari delicto

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(Latin. “in equal fault”)is an exception to the general rule that the parties to an illegal agreement cannot sue on the basis of their agreement; makes the contract enforceable if there is a clear disparity of guilt between the parties.

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Severable contract

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has legal and illegal parts that can be separated so a court can enforce only the legal parts.

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Genuine assent

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means the contracting parties actually intended to enter into a contract or that their acts and words indicated the intent to enter into a contract by the ‘reasonable man’ standard.

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Fraud

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involves reasonable reliance on an active misstatement of a material fact made with intent to deceptively induce to contract or made with reckless indifference to the truth.

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Representation

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is a statement made at the time of contract formation.

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Material fact

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is any fact that would change another’s action; would substantially influence the insurer’s decision to provide less coverage, charge a higher premium, or settle a claim for more money.

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Rescission

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is the cancellation of a contract formed under fraud, mistake, duress, undue influence, or innocent misrepresentation.

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Mistake

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is a perception that is inconsistent with the facts.

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Unilateral mistake

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is a mistake by only one party; has no effect on a contract’s validity unless the other party was aware of the mistake.

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Bilateral mistake (mutual mistake)

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is a mistake by both parties; if material, it allows either party to have the contract voided.

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Duress

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involves threat of injury or damage to person or property dear to the threatened person.

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Undue influence

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arises when mental infirmity impairs the victim’s judgment; is presumed to exist in a contract whenever the dominating party in a confidential relationship (lawyerclient, physicianpatient) receives greater benefit than the dominated party.

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Statute of frauds

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prevents fraud and perjury by requiring specified contracts to be in writing and signed by the party who will perform the contract.

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Real property (realty)

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consists of land and attached property; is what you would leave behind if you moved; is another term for real estate.

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Realty

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is another term for real property.

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Uniform Commercial Code (UCC)

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created a uniform set of rules for commercial transactions; codifies the law relating to express and implied warranties, sales contracts, disclaimers, and damages related to the sale of goods (not services) everywhere but Louisiana.

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UCC

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abbreviates Uniform Commercial Code.

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Condition precedent

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is a contractual condition that must be met before the other party is required to perform his contractual duties.

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Parol evidence rule

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states that once the parties set forth the terms of the contract in writing, they can not introduce prior oral evidence to alter its terms.

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Assignment

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transfers contractual rights.

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Assignor

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transfers contractual rights to an assignee in an assignment of contractual rights.

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Assignee

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receives contractual rights from an assignor in an assignment of contractual rights.

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Third

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party beneficiary contractinvolves one of the original contracting parties entering into the contract for the express purpose of benefiting a third party.

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Creditor beneficiary

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is the thirdparty beneficiary of a contract which, when completed, results in a discharged obligation to the creditor.

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Donee beneficiary

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is the thirdparty beneficiary of a contract which, when completed, results in a gift to the donee.

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Incidental beneficiary

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is a thirdparty beneficiary of a contract which, when completed, results in a benefit to the third party which was immaterial to the original parties’ contractual intents.

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Tender

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is an offer to do or to pay one’s contractual obligations.

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Novation

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substitutes a new party for an original party by mutual consent of all three parties.

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Condition precedent

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is an event or action which must occur before the duty to perform arises.

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Condition concurrent

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exists when both parties must perform at the same time; example: COD requires cash on delivery, so if cash is not available when scheduled delivery is made, delivery need not be made.

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Condition subsequent

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is a possible future event that terminates the contract if it occurs.

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Repudiation

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is the refusal to perform a contractual obligation.

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Anticipatory breach

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is the clear expression of intent not to perform under an executory, bilateral contract; allows the aggrieved party to sue immediately, without having to first perform to prove the breach.

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Compensatory damages

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put the injured party in the same financial position he’d be in if the other party had performed.

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Consequential damages

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are recoverable for any loss resulting from the breach that the defendant should have foreseen at the time the contract arose.

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Punitive (exemplary) damages

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punish the defendant (and set an example to others) and deter future misconduct.

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Exemplary damages

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is another term for punitive damages, but the with emphasis on the example to others rather than the punishment to the wrongdoer.

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Bad faith (outrage)

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includes any combination of fraud and intent to deceive, neglect, and refusal to fulfill a good faith duty or a contractual obligation.

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Outrage

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is another term for bad faith.

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Extracontractual damages

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are awarded in excess of contractual damages for an insurer’s breach of its duty of good faith and fair dealing or for its intentional infliction of emotional distress based on its outrageous conduct.

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Mitigation of damages

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minimizes damages; the wronged party is required to mitigate damages since he can not recover for the unmitigated excess.

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Liquidated damages

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are specified in the contract as a good faith estimate of the actual damages that would result from a breach.

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Specific performance

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requires the breaching party to perform the contract when money damages are inadequate.

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Injunction

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is a court order that a party must do or refrain from doing something.