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56 Cards in this Set
- Front
- Back
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Elements of a contract |
A contract is an agreement between two or more parties, involving either one or two promises. Promisor: party making a promise. The four elements of an enforceable contract are: Agreement: offer and acceptance. Capacity or ability to contract. Consideration. Legality of purpose. |
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Types of contracts |
A bilateral contract is a contract in which both parties promise a performance. Majority of contracts are bilateral. Either party may enforce the other's promise. E.x. one party agrees to mow the other party's lawn twice a month for $100. A unilateral contract is a contract in which only one party makes a promise. Performance of an act is exchanges for a promise. E.x. promise to pay $500 for someone to mow your lawn, you promise the money but the other party doesn't promise to mow the lawn. |
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Types of contracts pt.2 |
Executory (executed) contract has not been completely performed by one or both parties. Insurance contract is which no loss has occurred. Ex: homeowners policy w/o any damage to home yet hasn't been executed. E.x. If one party purchases and pays for equipment that is delivered by another party, this is an executed contract b/c nothing else is required from either party. Executed contract is a completed contract, nothing else is required from wither party. |
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Types of contracts pt.3 |
An express contract is an agreement in which the terms have been explicitly communicated between parties. Insurance is an express contract, doesn't have to be written but agreement has to be clear and there has to be meeting of minds between both parties. An implied contract is an agreement in which the terms are dictated by the parties' actions as opposed to their communication. Implied in fact: parties presumably intended to enter into a contract often based on trade customs or prior relationships between the parties, e.x. you have credit account and you've known the owner so you go in and pickup an item and show it to the owner and walk out. Implied in law (quasi-contract): contract imposed by law due to parties' conduct, e.x. a house painter is supposed to paint one house but paints the wrong one, the owner sees it but don't stop the painter, in that case since it was a mistake and the owner didn't stop the painter, the painter could sue the owner for damages since the owner's actions caused a contract to exists even though there wasn't an express contract. |
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Types of contracts pt.4 |
A voidable contract is a legal contract that could be voided by one of the parties. If the party that can void the contract chooses not to it can continue in force and can be executed. Right of avoidance is available to an injured or innocent party, such as minor. Injured party could affirm the contract. Contract can also be voidable if one party commits fraud. Contract with a corporation that is outside the corporate powers is voidable as an "ultra vires" contract. A contract that is not legally enforceable or binding is void. |
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Requirements of an offer |
Requirements of an offer: Intent to contract. Definite terms. Communication of offer. A contract will be created if the offer is accepted. An individual soliciting offers from other parties is free to accept or reject any offers the individual receives. |
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Intent to contract |
Offeror's language used is the most important factor in determining whether a communication is an offer. A general statement of intention that does not convey a promise is not considered an offer, e.x. If someone says they will sell their car for no less than $10k that is not an offer because it is a general statement of intention which doesn't constitute as an offer. Most advertisements are not considered offers. Do not express a present intent to contract with the individual viewing the advertisement, however in some cases, an advertisement may constitute an offer that is bound by an individual's acceptance. Offeror needs to know who they're contracting with. Social invitations, predictions and offers made in jest are not considered offers. |
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Terms and communication |
The two essential elements required for an offer to be valid are: Subject matter of the proposed contract. Identification of the parties to the contract.
An offer cannot be accepted before the offeree has knowledge of the offer. Offer can be valid if offeree began performing before learning of the offer. E.x. someone offers $500 to catch a person who broke into their house, even if the person who finds the burglar started on the investigation prior to knowing about the offer they can still accept the offer. In most cases if you're not aware of offer then you can't accept, however in this case the key element is the completion of performance after the offeree becomes aware of the offer. |
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Termination of offer |
Absent a specific expiration time, an offer will cease to be binding when a reasonable amount of time passes based on subject matter of offer. After an offer terminates, any acceptance is actually a counteroffer. E.x. if someone offers to sell car for $500 if there's a response within 7days and a person responds on the 9th day, their acceptance is actually a counter offer. An offer can terminate due to operation of law: Law enacted making it illegal to sell goods. Subject matter is destroyed. Offeror/offeree declared insane before acceptance. |
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Termination of offer pt2 |
An offer will terminate if rejected by offeree. Can be either rejected expressly, or through the use of a counteroffer (when you materially change terms of the offer). An attempt by the offeree to accept the rejected offer is considered a new offer. A counteroffer is an offer made by the offeree that varies in a material way from original offer. Different than a request for more information. E.x. Ronnie offered to sell Janet a home stero system for $800 and Janet replied by asking "will you accept $700?," since Janet was only inquiring if Ronnie would accept less this is simply a request for more information. If Janet had stated she would give him $700, that would be a counter offer. |
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Termination of offer pt.3 |
An offeror can revoke an offer at any time before it has been accepted. Revocation must be communicated to offeree. Communication must be received by offeree. Therefore if an acceptance is placed in the mail by the offeree prior to them receiving a revocation, the contract is valid even if the revocation was placed in the mail prior to the acceptance. Offeror's statement that offer is irrevocable is usually not enforceable. Offers made to the general public must be revoked by the same means of communication used to make offer. |
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Acceptance by offeree |
An acceptance must be made by the offeree. Must be unconditional and unequivocal (acceptance has to be clear, not vague). An equivocal (ambiguious) response from the offeree is not acceptance, nor rejection or counter offer. If acceptance deviates from the rems of the offer, if instead becomes a counteroffer. Must be communicated to offeror. If an offer is made to a group, any member of the group can accept the offer. The executor of an estate cannot accept an offer that was originally made to the decedent while he or she was still alive because the offeror has the right to choose who they wish to accept the offer. |
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Communication of acceptance |
If an offer dictates the method of acceptance, the acceptance must occur in that method. Once an acceptance is made by the offeree, it cannot be revoked or withdrawn. Silence by the offeree is not an acceptance. Language in offer cannot eliminate this rule. Prior dealings, though, may impose a duty on the offeree to affirmatively reject the offer. |
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Communication of acceptance pt.2 |
Unilateral contract: offeror looks for performance or forbearance. Forbearance is the giving up of a right. Mailed acceptance is generally effective when it is placed in the mail. If wrong address is used, the acceptance is effective only when offeror receives it. Courts have not provided clear guidance as to when an email acceptance is effective. |
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Capacity to contract |
Only competent parties can enter into valid contract. Capacity represents the ability to sue or be sued or enter into a contract. The law considers a party incompetent if they lack capacity to contract. An incompetent party can argue that a contract is voidable. |
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Contract with minor |
The most common age for a person to be able to enter into a contract is age 18. If minor misrepresents their age, the minor can still avoid the contract, and so can other party. Before avoiding a contact, most courts require minors to make restitution of benefits received. Minors cannot confirm contracts during minority. A minor can avoid a contract through any expression of intent to avoid the agreement, any act that is inconsistent with the contract also constitutes avoidance. E.x. Ronnie, 17, entered into a contract to sell his bike to Stan for $300 one month. A month later, after Ronnie turned 18, Stan went to Ronnie's house to pay for the bike but found out that Ronnie had sold his bike to Jimmy earlier the same day for $200, Ronnie has effectively avoided the original contract with Stan and is under no further obligation. A contract with a minor requiring them to perform services is generally not enforceable. |
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Contract with minor pt.2 |
A contract for necessaries is not voidable. Minors must fulfill their obligation. Necessaries relate to health, education and comfort. Other contract with minors not voidable: marriage contracts, bail bonds and child support. A parent is generally not liable for minor's contracts, unless cosigning on contract. |
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Contract with insane person |
A court's adjudication (declaration) of insanity is conclusive. Voids any contract the insane person has entered into (not involving necessaries). In order to avoid a contract based on insanity, it only needs to be proven that the party was insane at the time of the formation of the contract. Insane party must make full restitution if other party was unaware of the insanity. Sane person claiming insanity: contract remains in force until avoided by party claiming insanity. Must prove they didn't know contract was forming or didn't understand legal ramifications. |
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Contract with insane person pt.2 |
Sane person can enforce a contract with an insane party if they same party can prove: Sane party was unaware of the other party's insanity and insane party benefits from the contract. E.x. Sane person offers to fix insane person's fence for $400, the insane person accepts the offer but doesn't have the money to pay and sane person completes the work, insane person is bound by that contract b/c they will benefit and sane person was unaware of insanity and the fact that insane person didn't have the money. |
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Contract with intoxicated person |
A person who contracts while under the influence of alcohol or drugs can either avoid or ratify (accept) the contract upon becoming sober. Contract entered into with intoxicated person may be enforceable if other party was not aware of the intoxication. May be able to avoid contract if they can prove: they did not know a contract was forming. They did not understand legal consequences of acts purporting to form the contract. Often times the court frowns upon intoxication so they will agree that contract is valid. |
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Consideration |
Consideration is a requirement for a valid contract. Valuable consideration. Forbearance. Present consideration. Future consideration. Binding promises. |
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Valuable consideration |
Valuable consideration supports a contract (someone gives their car for $300, each have given consideration in that case). Courts generally do not attempt to determine the adequacy of consideration. The statement "here is something I have for you," would likely be deemed consideration. Good consideration is different than valuable consideration. Good consideration is based on love and affection or moral duty (if a father gives his property to his daughter because he loves her that doesn't support a contract, is not a binding promise because that is not valuable consideration). Does not support a contract. |
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Forbearance |
Forbearance, your consideration is an agreement not to act, is often seen in compromise cases. Can represent a promise to refrain from suing. In order for forbearance to be considered valid consideration, a right must be given up. If a person does not have a cause of action to sue, they are not giving up a right by agreeing not to sue. E.x. someone gets in an accident and is injured and agrees to accept cash from the other driver instead of sue the other driver. |
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Present and future consideration |
A promise or act must constitute a present or future commitment. Past consideration is not sufficient to enforce a contract, e.x. a person mows another person's lawn without that person's knowledge or consent, the person returns home and promises to pay the lawn mower $75 as compensation, this is unenforceable b/c past consideration is not sufficient. A new promise to pay debt previously unpaid is enforceable without additional consideration, if: promissor is bankrupt, one party was a minor when original promise made, time for payment has ended. |
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Not consideration |
The following are not valid consideration: past consideration (someone mows a person's lawn without ever having asked for money and one day asks for money, the lawn owner doesn't have to pay b/c they mowed the lawn before there was an agreement). Promises to perform existing obligations, police officer's promise to fight crime. Compromise and release of claims, debtor owes $200 but promises to pay $75 if creditor accepts it as full payment (promise is not binding b/c that's not valid consideration). |
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Exceptions to consideration requirements |
A contract may be valid even without consideration in some cases. Promissory estoppel: enforcement of a prior promise that is made without consideration, applies when other party relies on promise, is designed to prevent injustice (an employer promises a job to someone who moves a far distance and incurs expenses, when the person gets there the employer says there is no longer a job, even though there wasn't consideration there could still be a valid employment contract). Charitable subscriptions: making a pledge to charity is binding on the pledging party, courts apply promissory estoppel. |
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Legal purpose |
A contract must have a legal purpose to be enforceable. Illegal contracts are generally void. Parties cannot recover damages due to breach, nor can they seek recovery for performance. A contract that is illegal when formed will not become enforceable if a subsequent law change makes the terms of the agreement legal. If a legal contract becomes illegal, parties can recover value of performance prior to illegality. |
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Types of illegal contracts |
Contracts may be illegal if they are contrary to: Constitutional law, statutory law, case law or are against public policy. Contracts to commit crimes: a contract is void if it involves one party consenting to a crime. Insurance coverage of illegal property is void. Business interruption insurance on illegal business is void. Coverage of building with illegal activity conducted inside is valid. Wagering contracts: gambling contracts are illegal. Exculpatory clause in a contract can be used to excuse a negligent party from liability, courts often declare these clauses as illegal. This clause is typically unenforceable when the complaining party has a bargaining disadvantage. |
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Types of illegal contracts pt.2 |
Contracts in restraint of marriage: illegal regardless of whether it's marriage or divorce, e.x. spouse promises to pay other in exchange for divorce. Contracts to delay marriage are enforceable, provided a time limit is provided. E.x. $5000 to get married at age 21 is legal, $5000 to never get married is illegal b.c there is no time frame. Usury contracts: contracts in which lenders charge more than the legal limit interest rate. Lenders can still recover principle, not interest. Agreements to contribute more than the legal limit to a political campaign are void b/c they are contrary to public policy. Contracts with unlicensed practitioners: if a person completes services without a required license, recipient of service can refuse to pay. |
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Types of illegal contracts pt.3 |
Contracts in restraint of trade: contracts that unreasonably stifle competition are illegal. However, noncompete agreements are generally enforceable if reasonable, e.x. if someone purchases a business from someone else for a large sum of money and doesn't want them competing against them the buyer can make them sign a noncompete. If restriction bars the seller from ever again competing in the same business or area, the restriction is unreasonable, need to specify time frame. |
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Genuine assent |
For a contract to be enforceable, there must be genuine assent in the contract. Indication of intent to form a contract. A contract may lack assent if the parties entered into the contract by: Fraud. Mistake. Duress. Undue influence. Innocent misrepresentation. |
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Fraud |
Fraud is a false representation of a material fact. Representation must be knowingly made with the intent to deceive. Representation must be relied upon by other party to their detriment. Contract voidable if party has committed fraud. Remedies if fraud has occurred. Plaintiff may seek rescission (have contract undone by court). Plaintiff can sue for damages in an action in deceit which is a tort action that is only available if the rescission would not make the plaintiff whole. |
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Mistake |
A mistake can result in lack of genuine assent. A unilateral mistake involves one party's mistake. Generally has no affect on contract, unless one party knowingly exploits another's mistake. A bilateral mistake involves both parties. Leads to contract being voidable only if the mutual mistake relates to a material fact. E.x. person sells another person a jewel they both believed was cubic zirconium but it turned out to be a diamond, this created a voidable contract. Mistakes that change the nature of the contact will also lead to a contract being voidable. Mistake in identity of a jewel, e.x. someone sells a diamond but knows it's not. If a contractor makes a bid on a public works project that contains a material mistake the bid can be retracted if: the government agency has done nothing more in reliance on the bid than accept it or the contractor makes the retraction promptly after discovery. |
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Duress and undue influence |
Duress is the use of restraints, threats of violence or actual violence to coerce a party to act against his or her best interests. Courts consider the mentally, education, intelligence and health of the victim. Undue influence represents the use of improper power to deprive a person of their free will. Causes person to enter into a contract. May result from a relationship, such as parent and child, attorney and client, etc. |
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Innocent misrepresentation |
Innocent misrepresentation does not involve any fraud. Plaintiff need not prove intent to deceive. Monetary damages are not awarded for innocent misrepresentation. Victim asks court to rescind the contract but cannot sue. |
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Statute of frauds |
A statute of frauds is a law preventing fraud and perjury and generally requires contracts to be in writing and contain signatures. Each state has adopted statue of frauds. Writing can be simple note or memorandum. Real property contracts must be in writing. Does not allow rescission of contract, but serves as a defense to a suit for breach. A promise from an executor to pay estate debts from the executor's personal assets must be in writing. Oral contacts outside statue of frauds are note void but are voidable. |
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Statute of frauds pt.2 |
Contracts subject to statute of frauds (contracts that need to be in writing): Sale of land. Contract that cannot be performed within one year. Contract to pay another's debt. Consideration of marriage. By executors of decedents' estate to pay estate debts from executors' funds, e.x. an executor can promise to pay estate debts out of executor's own funds. Sale of goods for $500 or more. |
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Factors of interpretation |
Courts apply certain standards and consider several factors, when interpreting contracts. Courts do not create new contracts for the parties. Factors considered by courts: Plain meaning: words in a contract are to be understood in their usual meaning. Legal terms interpreted on legal meaning. Court can ignore plain meaning if it conflicts with intention of the parties. |
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Factors of interpretation pt.2 |
Factors considered by courts: Effectuation of intent: Individual clauses and words interpreted based on overall intent of contract. Entire and divisible contacts: one party must complete performance before the other party in an entire contract. Divisible contracts allow each parties' performance to be divided into parts e.x. a contract for someone to prove 5 separate shipments of a good and they provide 2 shipments but not 3rd, the buyer will need to pay for first 2 but not the rest. Clerical errors: courts may reject or supply words to reflect the intent of the parties. |
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Factors of interpretation pt.3 |
Factors considered by courts: Contradictory terms: system of proprieties that the court uses: Handwritten words over over typewritten words. Typewritten words over printed words. Words over numbers. Ambiguity: courts typically adopt the interpretation least favorable to the party creating the ambiguous provision. |
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Third-party rights |
Generally, only parties to a contract have rights in the contract. Third parties may have rights in a contract in the following situations: contract is assigned: an effective assignment can be oral or in writing, no formality is required, assignment enforces contract w/o requiring delegation. Creditors generally can assign the right to receive payment from debtors to third party. Third-party beneficiary contracts. Third party beneficiaries have a right to enforce a contract if one of the parties breaches the contract. |
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Contract assignments |
Contractual assignments involve the transfer of performance rights to others. When a contract is assigned, the assignor has no right to contract performance. Third party assignee has right to performance. Most contract rights are assignable. A seller or creditor can assign the right to receive payment to a third party. E.x. life insurance. However the standard fire insurance policy prohibits assignment to a third party w/o consent of insurance company. Rights to receive payment for a debt are assignable w/o the obligor's consent. |
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Contract assignments pt.2 |
Contract rights that are not assignable: Personal rights, disability benefits, pensions, wages, inheritances and workers comp. Assignments materially altering performance. Standard fire insurance policy prohibits assignment without insurer consent. When a judgement is pending in personal injury case, damages generally cannot be assigned by the injured party when pending but when final a judgement is generally assignable. |
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Third party beneficiary contracts |
Third party beneficiary contracts can benefit creditor, donee or incidental beneficiaries. Creditor beneficiaries: owed a debt to be satisfied by contract performance, have enforceable rights against promisor, promisee's intent governs, e.x. if Scott owes James $200 and Scott sells his car for $500 to Chris and he pays Scott $300 and promises to pay James $200, in this case Chris is the promisor and Scott is the promisee, If Scott's intent is to discharge his debt owed to James that makes James a creditor beneficiary because the prmoisee's intent is what dictates that and James has enforceable rights against Chris. Donee beneficiaries: receives performance of a contract as a gift from the promisee, have enforceable rights against promisor, The legal distinction between a creditor and a donee beneficiary is becoming less important, they are often treated as one class. Incidental beneficiaries: no enforceable rights. |
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Third party beneficiary contacts pt.2 |
Third party beneficiary contract characteristics: Must be binding contract between promisor and promisee. Parties must have intended for a third party to benefit from the contract. Must clarify to whom performance is owed. If performance is owed to a third party, the third party may sue, however if performance is owed solely to a promisee, a third party cannot sue the promisor for performance. A third party expecting to benefit from someone else's contract may have enforceable tights under that contract. |
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Performance and agreement (contract termination) |
Performance: if a contract does not specify a time of performance, actual performance must occur within a reasonable time. Rejection of a tender to perform will discharge that obligation. Rejection of a tender of payment of a debt will NOT dischrage the debt. Agreement: parties can agree to rescind. |
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Substitution (contract termination) |
Substitution: parties can agree to substitute a new contract for an existing one. Novation: substitution of a third party for one of the original parties to a contract, releases an original party from his her obligations under the contract. Accord and satisfaction: discharges debt, parties agree to performance other than that specified in original contract. |
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Impossibility (contract termination) |
Impossibility: promisor's duty is discharges if performance becomes impossible. Frustration: preventing attainment of goal, unforeseeable circumstances. Impracticability: performance unreasonable. Impossibility: performance can't occur, under temporary impossibility of performance, promisor's duty is suspended, when impossibility ends, promisor's duty will renew. E.x. when two people enter contract and shortly after there's a law passed that makes contract illegal, performance is then impossible making contract void due to impossibility. |
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Contractual conditions (contract termination) |
Failure to satisfy a contract condition may alter or dischrage the contract. Condition precedent: must occur before duty to perform exists, nonfullfillment can discharge a contract. Condition concurrent: two or more conditions that must occur at the same time. Condition subsequent: event that discharges a duty of performance, terminates contractual rights. Accord and satisfaction is a method of discharging a claim whereby the parties agree to give and accept something in settlement of the claim and perform the agreement, the accord being the agreement and the satisfaction its execution or performance, e.x. Ron owes Judy $300, since Ron did not have $300 he agreed that he would epoxy the floor of Judy's garage instead of pay her $300, Ron completed the work and Judy released Ron from his obligation. A novation is the substitution of a third party for one of the original parties to a contract. |
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Contractual conditions pt.2 (contract termination) |
In an insurance contract: both the premium payment and a loss are conditions precedent to a liability under the policy. The requirement that an insured must submit a notice of loss within a certain time of loss can be condition precedent or subsequent. Depends upon wording of the condition. A condition that an insured must sue within a certain time of loss is condition subsequent. |
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Types of breach |
Repudiation: a party's refusal to satisfy the obligations of a contract. Must be positive and unequivocal. Statement of inability to perform in the future does not constitute repudiation. Time of performance must have passed before a party can sue. A minor breach of contract may temporarily suspend a duty of performance for the nonbreaching party. The materiality of a breach of contract is a question of fact. |
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Types of breach pt.2 |
Anticipatory breach (allows a person to sue before time of performance): unequivocal indication that performance will note occur. Aggrieved party can sue before time of performance has passed. Requirements of anticipatory breach: Bilateral contract. Executory contract (performance has not been executed). Promise has clearly indicated an intention not to perform. |
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Remedies for breach |
An injured party can sue for a breach of contract, seeking the following remedies: damages: Legal remedy (money), Most common remedy for a breach. Specify performance: equitable remedy. Injunction: equitable remedy. When a contract is breached the general remedy for an owner is recovery of damages that result directly from the breach such as the cost to repair or complete the work. Consequential damages include loss of product and loss of profit or revenue and may be recovered if it is determined such damages were reasonably foreseeable or "within the contemplation of the parties," at the time of contract formation. |
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Remedies for breach pt.2 |
Categories of damages: Compensatory: reimbursement for harm, losses caused by contract breach. Consequential: reimbursement for indirect losses caused by a wrong, defendant must have been aware of probably occurrence of the loss. Punitive (exemplary): punish a defendant for a malicious of deceitful act, inappropriate in most contract cases. |
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Remedies for breach pt.3 |
Categories of damages: Extracontractual: award when defendant breaches their duty of good faith through extreme and outrageous conduct. Liquidated: amounts agreed to by the parties and included in the contract itself. Paid in the event of a breach, and are not awarded by a court because they are included in the contract. |
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Remedies for breach pt.4 |
Damages are not always an effective remedy for breaches of contracts for the sale of goods. Specific performance: equitable remedy in which court orders a party to perform an act as a result of a contract breach. Injunctoin: equitable remedy in which a court orders a party to refrain from acting. Injunction for personal service contract can only be granted if service is unique. |
