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144 Cards in this Set
- Front
- Back
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The roles of contracts include:
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1. The facilitation of mutually beneficial trade(performance)
& 2. The allocation of risk of future events. |
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Define: Executory Contract
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: A contract that has not been fully performed by either party.
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An example of how a mutually beneficial contract can become one-sided in between when the contract was made and when the performance took place
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farmers contract to supply a certain quantity of grain to a dealer at a certain price at a certain time. If the market price of grain falls substantially during the period, then the dealer is still stuck with the higher price even though grain is available at a lower price elsewhere
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"least-cost avoider of risk"
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-some parties in the economy are better at minimizing the costs associated with risk than are other parties. Good examples of this are grain dealers, they minimize risk by engaging in numerous buy and sell contracts so that an unexpected up or down fluctuation does not hurt them as much. They are also able to predict when the prices will change.
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Define: Express Contract
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:A contract in which the terms of the agreement are fully and explicitly stated in words, written or oral.
(ex: signing an apartment lease or if a girl next door offers to wash your car for $5 and u accept) |
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Define: Implied/Implied-in-fact contracts
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A contract that is implied from the conduct of both parties.
(ex: When one takes a seat in a barber chair it is implied that he/she is bargaining for a haircut for a reasonable price(unless price is posted) even if no verbal obligations are exchanged. |
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The Enforcement and interpretation of a contract is based on what is known as objective standard. Which is what would a reasonable person do in a like situation?
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foreigners get no leeway when it comes to this. if in their country kicking their cousin is a legal thing that means "love" and they come over here and kick someone then they can be arrested even tho they had no clue.
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reasonable person test:
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the objective standard that we hold people to in order to see what a reasonable person would do in that situation
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Define: Quasi Contract a.k.a. Implied by law contract-
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: a.k.a. Implied by law contract. It is a contract where it is almost a contract but there is something missing and is therefore not a contract. However if 1 party is benefitting from the contract while the other party is being taken advantage of they can throw themselves on the mercy of the court and beg them to supply the missing element.
(extremely hard to win) |
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Define: Unconditional Contract
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A contract where a duty of performance is absolute when the only occurence necessary to require performance is the passage of time.
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Define: Conditional Contract
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A contract where the duty to perform does not happen until a certain condition is met.
Ex. a travel agent may book a room at a ski resort for you on april 23 so long as the snow pack is at least 80 inches. If it doesnt reach 80 he doesnt book it. |
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Types of Conditional Contracts:
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1. Condition Subsequent
2. Condition Precedent 3. Condition Concurrent |
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Define: Offeror
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-the party that is making the offer
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Define: Offeree
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-The party to whom the offer is made
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The offeror always promises to do or not to do somethiing and is thus also known as a:
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promisor
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The party to whom a promise is made is known as the
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promisee
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Define: Bilateral Contract
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if a return promise is required, then the contract is a bilateral contract since both parties are promisors.
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Example of a bilateral contract:
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When a house painter OFFERS to paint the owners house for $2,000 and the owner PROMISES to pay $2,000, there is an exchange of PROMISES thus making it bilateral
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Define: Unilateral Contract
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If the offer is phrased in such a way that the offeree can accept only by performance, than it is a unilateral contract.
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Example of a unilateral contract:
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If the house owner states that he will pay the painter $2,000 if the painter paints his house, then the painter can accept only by painting the promisor's house.
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Thus a bilateral contract is a _____ for a _____ and a unilateral contract is a ________ for an ______
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bilateral = promise for a promise
unilateral = promise for an act |
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If the contract were bilateral then painter would be breaching the contract by breaking his promise.
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If the contract were unilateral the painter would not be breaching the contract since the contract DID NOT EXIST until the painter painted the house
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Define: Executed Contract
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A contract who has been fully performed by both parties
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Define: Partially Executed Contract
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it truely refers to an executory contract, but it is also referring to a situation where one party has completed their part of the contract while the other party has not.
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How to word a partially executed contract
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if the contract is 'executed as to Michael' that means that Michael has performed his part whereas the other party has not
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Define: Valid Contract
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A contract that has all of the elements necessary to entital at least one of the parties to enforce it in court
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Define: Void Contract
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A contract that is no contract at all, it is not recognized by the law. It produces no legal obligations by any of the parties.
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Define: Voidable Contract
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valid contracts in which one of the parties to the contract has the right to avoid his/her contractual obligations without occuring legal liability. aka at least one of the parties is able to void the contract if they choose.
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Define: Unenforceable Contract
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a valid contract that cannot be enforced because of certain legal defenses. It was a legal, valid contract but the law changed and now it is illegal. Ex: had a contract in college at age 18 to have keg delivered weekly, once law changed drinking age to 21, the contract became unenforceable.
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On a void contract that became unenforceable if debt was still owed on the contract prior to the law changing
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then that debt is still owed even though the law has changed.
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The most common form of law suit in america?
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Breach of Contract is the most common form of law suit filed in america
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In order for a contract to be enforceable and valid it must have these elements:
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1. Mutual agreement between parties
2. Consideration 3. Contractual capacity of the parties 4. legal subject matter 5. Genuine and real assent to the contract 6. Some contracts MUST be in writing |
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The person attempting to enforce the contract must prove the existence of:
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the first two elements of a contract:
1. Mutual agreement & 2. Consideration |
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The defendant, against whom the contract is sough to be enforced, can prove the non-existence of the contract by proving the lack of:
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any of the last four elements:
1. Contractual capacity of the parties 2. Legal subject matter 3. Genuine and real assent to the contract. 4. Some contracts MUST be in writing |
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The defendant can also rebut evidence presented by the plaintiff(enforcer) with respect to:
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the first two elements of a contract:
1. Mutual agreement & 2. Consideration |
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The plaintiff(enforcer) can rebut any evidence presented by the defendant with respect to:
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The last four elements of a contract:
1. Contractual capacity of the parties 2. Legal subject matter 3. Genuine and real assent to the contract. 4. Some contracts MUST be in writing |
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Define: Mutual Agreement
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Because a contract involves a voluntary transaction, the courts will not enforce the transaction unless it is clear that the parties agreed and assented to the subject matter of the contract.
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Two parts of a Mutual Agreement:
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1. Offer &
2. Acceptance |
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Define: Offer
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A promise that expresses the willingness of the offeror to enter into an enforceable agreement regarding a particular subject.
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To have a valid offer there must be _____ , ________, and the offer must be _________ to the offeree.
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There must be intent, definite terms & conditions, and the offer must be communicated to the offeree.
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The first principle of an offer is that the offeror must ______ to create a legal obligation, or at least must appear to show _____ for the promise to constitute an offer.
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1. intend/intent
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An offer made in jest or excitement is not binding because:
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Because a reasonable person would not regard such an offer as indicating a willingness to enter a binding agreement.
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Define: Preliminary Negotiations
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The first statement from one of two negotiating parties is not always the offer. The question "Would you consider selling your business for one million dollars?" is not an offer to buy, but an inquiry.
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Preliminary Negotiations are involved in a lot of advertisements:
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Advertisements and catalogs are construed as mere invitations to buyers to come in and negotiate with the seller. Of course if the seller makes a habit of refusing to sell on advertised terms, he will loose customers.
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Some state statutory laws require advertisers to honer their advertisements.
**True or False?** |
True!
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The second requirement for an offer is ____________
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2. the terms and conditions of the offer must be definite. An offer whose terms are vague and indefinite does not work.
Ex: If two business people agree to form a joint venture for "as long as is reasonably profitable" the duration for the venture is too vague thus making the contract void. |
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Not all offers with missing terms are too indefinite to be enforced.
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Courts will often supply the additional terms if they are minor or immaterial.
Ex: If pat agrees to buy Bobs car for $200.00, the contract will not fail just because they have neglected to specify the method of payment. Most courts would imply a term of cash on delivery. |
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One term the courts will not supply in order to meet 'definite terms and conditions' is the ________
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the quantity term.
to be definite the offer must either state the quantity or the quantity must be easily ascertainable from the terms of the offer. |
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The third basic requirement of the offer is that _____-
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3. the offer must be communicated. Until the offer is known to the offeree, there is no legal contract.
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Example of the fact that the offer must be communicated:
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The reward is typically an offer to pay money in return for the act of returning the animal. But, if the claimant returns the animal before learning of the reward, then no acceptance takes place since the offer was never communicated.
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Ways to Terminate an Offer:
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1. Revocation
2. Rejection 3.Lapse of Time |
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The most obvious ways for an offer to terminate is through:
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revocation of the offer by the offeror or rejection of the offer by the offeree.
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Define: Revocation
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Where the offeror takes back or revokes his offer priot to the acceptance by the offeree. Like the offer it must be communicated to the offeree.
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Ways to revoke an offerL
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Either telling the offeree "Ted, you'll be sorry you didn't accept my offer, I sold the car to Joe yesterday" or simply selling the car to Joe prior to Ted's acceptance is revocation.
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Often an offer by its terms will allow the offeree a stated period of time to accept the contract. If the stated time expired without acceptance then the offer:
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Has been terminated by 'lapse of time'
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Define: Option Contract
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a binding contract that makes an offer irrevocable for a set time.
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Example of an option contract:
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If sally gives Jim $5 in return for the right to have two weeks to decide/save up for a stereo Jim is trying to sell, this is consideration and assuming all of the other required elements of a contract are present, Jim can not revoke his contract during those two weeks
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An important form of rejection known as the Counter Offer is defined as::
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Examples: Bill offers to rent Ted a house for $650/month with a 1 year lease. If Ted counteroffers to rent at $700 a month with a 6-month lease, the original offer was rejected and can no longer accept unless Bill renew's the offer. Now Ted is the new offeror and Bill the new offeree.
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Certain offers terminate through the operation of law:
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1. If the subject matter of the offer becomes illegal, the offer terminates.
2. If the subject matter of the offer is destroyed the offer is terminated. 3. If the offeree or offeror goes insane or dies the offer is terminated. |
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No particular form of words or method of expression is required by law to be your acceptance but it can be specified how you do it in the offer. However:
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However: An Acceptance must be unconditional, unequivocal, and legally communicated.
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An acceptance must be:
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1. Unconditional
2. Unequivocal 3. Legally Communicated |
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The terms that are accepted must be the exact terms or the "_______ _______" of the terms of the offer, nothing more or nothing less.
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mirror image of the offer. If the offeree adds/removes terms, this operates as a counteroffer which terminates the original offer.
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If an offeree states than an offer "appears to be a very good offer/bargain" :
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there is no acceptance based on those words.
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If an offeree states that "it appears to be a very good bargain and I ACCEPT" :
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then those words would constitute an acceptance.
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The acceptance must be legally communicated through:
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must be communicated through an acceptable mode or medium of communication. Whether the method chosen is acceptable depends on if the offer specifies how it must be accepted.
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If there is an offer it must be communicated to the offeree and is only valid when it is received by the offeree.
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Likewise, the revocation is only effective when the offeree receives it. *In acceptance the offeree is the key person!*
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The acceptance is valid when dispatched by the offeree is the acceptance is timely and properly dispatched.
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If it is improperly dispatched, such as being mailed to wrong address then the acceptance is not valid until it is received by the offeror.
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Define: The Mailbox Rule-
While the mailbox rule is obviously not a perfect rule, it does give us the rules to determine when the acceptance takes place. |
If the acceptance is improperly dispatched, such as being mailed to wrong address then the acceptance is not valid until it is received by the offeror.
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In a Unilateral Offer, the only way for acceptance to take place is:
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acceptance takes place in a unilateral offer when completion of whats required in the offer is met.
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When does the acceptance occur in a unilateral offer?
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for years common law had required complete performance before acceptance has occured. So any time prior to complete performance the offeror can change his mind and tell the offeree to go home without getting a dime.
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There is a trend to allow acceptance by the offeree after either:
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a substantial amount of the work has been completed, or still require to complete performance but force the offeror to pay the offeree for the work hes done prior to the offeror stopping the offeree
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The Minority Rule:
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Some states say if the offeree has done a substantial amt of work the job can be completed or the offeror has to pay some $ for partial work that was completed.
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The second element of a contract is:
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Consideration
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Consideration is:
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Something of value that is given up in return for the promise of the other party to the contract.
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Often, Consideration for a promise is in the form of a return promise.
Example: |
Ted offers to mow your lawn for $25. You agree. Ted has promised to mow your lawn and you ahve promised to pay Ted $25. Each of the promises is the CONSIDERATION for the other.
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The requirement of consideration is to assist the court in determining whether:
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Whether or not the parties intended to be bound by their promises, that is, whether they intended to enter into a contractual exchange.
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Ordinarily a promise to make a gift to another is a gratuitous promise & in not enforceable b/c the promisor didn't receive consideration in return for his promise. Example:
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After a weekend home, as you drive away Mom yells, 'be good at school' and you in return promise her 'I Will'. Since there is no stated consideration, Mom can take no legal action against you when you havent been good.
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If mom knows contract law and says 'be good at school or I will not pay for school, your truck, or your gas' and you return to school and are not 'good':
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mom has legal recourse due to your breach of contract.
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Another way of looking at consideration is that :
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one side must have legal detriment and the other side must be receiving a legal benefit
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One Side must have legal detriment meaning:
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they are require to do something by the contract that they were not already previously obligated by law to do, or they are agreeing to give up a legal right that they have
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One party must be receiving legal benefit meaning:
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They are receiving a legal benefit they were not entitled to receive, but for the contract.
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Since There must be a mutual exchange of consideration:
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Both parties will have legal detriment and both will receive legal benefit.
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Define: Adequacy of Consideration
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As a general rule, courts do not interfere with the bargain of the parties. They do not inquire into the adequacy of consideration. If one party bargained poorly, that party is stuck with the bargain except when the bargain involved fraud or other misconduct
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Courts will also not examine whether the consideration given by one party actually benefits the other party.
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Simply put, the courts do not bail you out of a dumb deal.
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Define: Illusory Promise
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an expression cloaken in promissory terms that does not actually involve a commitment by the promisor.
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The doctrine of consideration requires that the promises of both parties to a bilateral contract be supported by consideration. However::
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If one of those promises is illusory, nor does not have to be done, then the entire contract fails. Either party to the contract may use the illusory promise as a basis for refusing to perform.
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Example Illusory: If a contract to supply raw materials at a specified $ for a specified time contains a proviso that the $ is subject to change without notice at the discretion of the supplier, then the supplier has not made a commitment to do anything.
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On the other hand, if the supplier promises to supply the materials subject to cancellation upon two weeks notice, then the promise is not illusory.
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Many courts will enforce certain promises that are not supported by consideration by applying the :
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doctrine of promissory estoppel, which is also called detrimental reliance.
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If a person makes a promise under circumstances such that it is easy to foresee that a reasonable promisee would be talked into it, and if the promisee changed his position relying on the promise, and if the promisee will suffer a substantial loss if the promise is not kept, then:
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promissory estoppel may be used to enforce the promise
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Promissory estoppel differs from consideration in that:
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the promissory estoppel is not a bargained-for price of the contract. It is simply a result of the promise.
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The 3rd element of a contract is:
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Contractual Capacity
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Define: Contractual Capacity
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Contractual Capacity Refers to the ability of a contracting party to understand that a contract is being made and to understand its general nature.
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Although minors can enter contracts in the same manner as adults:
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they have the right to disaffirm or void their contracts. Also if an adult enters into a contract with a minor and the minor wants to continue the contract, the adult has no choice but to continue the contract.
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The one exception that treats minors like adults in regards to contracts is when:
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When the minor is in contracts for necessities. Minors who are truly out on their own are liable for the reasonable value of necessities and therefore, can not disaffirm contracts for necessities.
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Minors also do not have the right to void contracts under common law for the enlistment into the militay
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and they can also not disaffirm marriage contracts.
Also by statute, minors are bound to and can not disaffirm insurance contracts, some banking contracts, public transportation contracts, and student loan contracts. |
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In order to avoid a contract, a minor need only:
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manifest an intention not to be bound by the contract anymore. Words or conduct can manifest this intent.
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If a minor disaffirms an executed contract:
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There may be a corresponding duty to return the object of the contract to the other party, which is called the duty of restitution.
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The duty of restitution is only required for minors if he is able to make restitution.
For Example: |
Sarah(14) buys a tv from Ben(65). Sarah stops making payments on the tv. Assuming that the tv is not a necessity, Ben is unable to sue sarah for the payments, but he can sue to require that sarah return the tv. If sarah no longer has the tv or it's been destroyed, then she owes nothing to Ben.
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After reaching the age of majoring, an individual can ratify contracts formed as a minor, thus removing the ability to disaffirm.
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Ratification can be expressed through words, or may be implied from the individual's conduct.
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If a child misrepresents their age, most states still allow the child to disaffirm the contract.
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However in a growing # of states, if the child lies about their age then they are bound by the resulting contract.
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3 Main Types That Are Not Contractual Capacity
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1. Minors
2. Intoxicated 3. Insane |
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If an individual is intoxicated when a contract is formed, the contract is potentially voidable.
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You have to be able to prove that you normally would not do such a thing that is called for in the contract. You will still have to pay restitution but will be out of contract.
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Contracts formed by insane people can be void, voidable, or valid. The distinction is based on:
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Whether the person is adjudged insane by a court or not and when they are adjudged insane.
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When a person is adjudged insane, there is a court declaration that he lacks contractual capacity,
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a contract with such a person is void.
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a contract with an insane person who is not adjudged insane by a court is
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a valid contract if they can understand the subject matter, nature, and consequences of the contract. If they do not understand then the contract can be voidable but must pay restitution.
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The fourth element to a contract is
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Legality
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For a contract to be vaild, :
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Its subject matter must be lawful. A contract that violates a state or federal law is illegal and void.
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In addition to being unenforceable because of illegality, some contracts are unenforceable because they:
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violate public policy! The courts find that such contracts have a negative impact on society and refuse to enforce them.
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Two Types of contracts that violate public policy are:
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1. Unconscionable contracts &
2. Exculpatory Agreements |
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Define: Unconscionable Contract
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contracts that are grossly unfair one-sided contracts where one person is taking advantage of the situation.
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Define: Exculpatory Agreement
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an agreement that releases one party from the consequences brought about by his or her wrongful acts or negligence.
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Example of an Exculpatory Agreement: An airline that requires passengers to sign a release that relieves the airline of all liability for death or injury related to
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gross negligence of the airline. Such an agreement will not be enforced and for good reason. The passenger has little choice but to sign the agreement if he wants to board the plane.
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Exculpatory Agreements are common place and mainly serve to alert the signing parties of inherent dangers and possibly delude them into thinking they have no cause of action in the event of injury
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However, in other cases, when a party has a reasonable choice of whether to engage in a dangerous activity such as sky diving, such exculpatory agreement have been upheld.
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The fifth element to an enforceable void contract is it must have:
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Genuine and real assent to the contract.
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Once proof of agreement has been established, attention turns to the terms of the contract. The reason for requiring a specific offer before a contract can be made is because the terms of the offer are the terms of the contract.
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Since the offereeaccepted the terms of the offer, those terms became the terms of the contract. However, there are a number of issues that arise even though the terms of the offer are clear.
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Even though the terms of the offer are clear there are a number of issues that may arise.
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One of these issues is whether the contract was freely and voluntarily entered into. This usually centers around mistake, fraud, duress, and undue influence.
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In order to have Genuine and Real Assent to the contract, both parties must have freely and voluntarily entered into the contract. Mistake, fraud, duress, and undue influence all make a contract void.
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Mistakes: Obviously, if one or both of the parties were mistaken about the facts of the contract, the terms of their agreement are in doubt.q
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Three Types of Mistakes:
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Unilateral Mistake, mutual mistake of value, and a mutual mistake of a material fact.
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Define: Unilateral mistake
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A mistake which by only one party gives no relief to the contract terms. Therefore it must be a mutual mistake for there to be relief.
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Mutual Mistake of Value:
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There is no relief for mutual mistake of value. If both parties thought the subject matter of the contract was a diamond worth $30,000 and it turned out not to be a diamon but a fake and no relief is given.
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Mutual Mistake of a Material Fact:
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Relief is given if both parties were mistaken of a material fact: If Bob agrees to sell Ted a tract of land believed to be 10 acres, but they learn that the tract is only 7 acres, then the terms of the contract haven't been agreed upon and the contract is void.
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Fraud: First, the contract can be rescinded and the innocent party restored to his/her original position.
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Alternatively, the innocent party can seek to enforce the contract and sue for damages caused by the fraud.
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The 4 Elements of Fraud Are:
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1. A misrepresentation has occured.
2. there has been an attempt to deceive. 3. the innocent party has justifiably relied on the misrepresentation 4. the innocent party has been injured. |
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Duress:
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Real Duress: is when someone forces another person to enter into a contract against his or her will.
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Personal Duress: However, if the duress is simply economic in nature, there is no relief due to the 'duress'.
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Example: You sell your car at a ridiculously low price to have the $ for your childs operation. Whether the child has to have the surgery or not, you made a choice freely and voluntarily to sell the car.
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Undue Influence: is where someone mentally takes control of another person and substitutes their will for that of the victim.
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Example: Elderly people are particularly susceptible to this type of action. Often TV ministers are only in the ministry for the $ and they convince elderly people to send them all their $.
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The 6th Element of a contract is:
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Some Contracts Must be in writing!
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Uniform Commercial Code = Any contract for over $500 must be in writing.
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There are certain types of contracts that must be in writing in order to be enforceable
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Contracts incapable of being performed within one year.
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Anything requiring work that will take over one year to complete must be in writing.
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A contract for the sale of goods over $500.00 must be in writing.
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Contracts for the sale or transfer of an interest in real property must be in writing. Anything involving real estate.
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Promises to perform the obligations of others:
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Since many gratuitous promises are made to perform the obligations of others, these must be in writing to assure the presence of consideration.
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Promises made in contemplation of marriage must be in writing
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prenuptial agreements.
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The Parol Evidence Rule:
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Prohibits the introduction of oral testimony, or extraneous writings that contradicts or varies from the terms of written contracts.
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Exceptions to the Parol Evidence Rule:
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1. When the parties modify an existing written agreement orally, evidence of the oral modification can be introduced into court.
2. oral evidence can be introduced to show that the contract was void or voidable. 3. Oral evidence can be presented to explain terms that are ambiguous or incomplete. |
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Breach of contract cases are usually filed because one or both of the parties failed to live up to his promised performance. The contract was not 'properly discharged'
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Three Types of Performance Discharge:
1. Complete Performance(good) 2. Incomplete but substantial performance(bad) 3. Totally incomplete performance(ugly) |
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Define: Condition Precedent
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A clause in a contract that identifies some condition or obligation-triggering event that must occur prior to the creation of an obligation under the contract.(travel agent)
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Define: Condition Subsequent
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a condition that follows the duty to perform. Alpha Company and Beta Compant enter into a contract that has a provision that the contract will become null and void if either company becomes the subject of a hostile takeover.
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Insurance contracts usually contain:
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both condition precedent and condition subsequent clauses.
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Define: Concurrent Conditions:
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Only occur when the parties expressly or impliedly are to perform their respective duties simultaneously. Ex: House closing. Seller does not have to sign papers selling house to buyer until buyer sign papers buying the house and pays for the house.
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Define: Recission
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The parties can form a new contract for the express purpose of discharging the original contract. It must be supported by consideration.
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Define: Novation
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The process of novation substitutes a new party for one of the original parties.
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Define: Accord and satisfaction:
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For a contract to be discharged through an accord and satisfaction, the parties must agree to accept performance that is different from the performance originally promised.
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An Accord is the agreement between the parties for the differnt performance
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The satisfaction is the performance of substituted obligation. An Accord is not binding until the satisfaction is made.
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Define: Unliquidated Debt
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A debt that is truly in dispute, neither party can prove the exact amount owed.
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