BLAW CHAPT 9 & 10 – Flashcards

Contracts made by mentally incompetent persons can be void, voidable, or valid. VOID: If a court has previously determined that a person is mentally incompetent and has appointed a guardian to represent the person, any contract made by that mentally incompetent person is void. VOIDABLE: If a court has not previously judged a person to be mentally incompetent but in fact the person was incompetent at the time, the contract may be voidable. A contract is voidable if the person did not know he or she was entering into the contract or lacked the mental capacity to comprehend its nature. Like intoxicated persons, mentally incompetent persons must return any consideration and pay for the reasonable value of any necessaries they receive. VALID: A contract entered into by a mentally incompetent person (whom a courthas not previously declared incompetent) may also be valid if the person had capacity at the time the contract was formed.

Takes care of the incompetent person

Takes care of the incompetent person's money

Ted (17) buys a car, but then returns it and wants his money back. Ted wins because he's a minor (mentally incompetent) so the contract was voidable the whole time. Ted lies and says he's 18, most states will permit disaffirmance even if he misrepresented his age when entering into the agreement. The dealer can't get out of the contract because he's not the minor. When Ted just turns 18 he wins, but if he returns the car 6 months after he's 18 the dealer wins (ratification)

The act of accepting and giving legal force to an obligation that previously was not enforceable. EXAMPLE: Lin enters into a contract to sell her laptop to Andrew, a minor. Andrew does not disaffirm the contract. If, on reaching the age of majority, he writes a letter to Lin stating that he still agrees to buy the laptop, he has expressly ratified the contract. If instead, Andrew takes possession of the laptop as a minor and continues to use it well after reaching the age of majority, he has impliedly ratified the contract.

The legal avoidance, or setting aside, of a contractual obligation. EXAMPLE: Sixteen-year-old Joseph Dodson bought a truck for $4,900 from a used-car dealer. Although the truck developed mechanical problems nine months later, Dodson continued to drive it until the engine blew up and it stopped running. Dodson then disaffirmed the contract and attempted to return the truck to the dealer for a refund of the full purchase price. The dealer refused to accept the truck or to provide a refund. Dodson filed a sit. Ultimately, the Tennessee Supreme Court allowed Dodson to disaffirm the contract but required him to compensate the seller for the depreciated value-not the purchase price-of the truck.

Necessities required for life, such as food, shelter, clothing, and medical attention; may include whatever is believed to be necessary to maintain a person's standard of living or financial and social status. A minor who enters into a contract for necessaries may disaffirm the contract but remains liable for the reasonable value of the goods used.

Intoxication is a condition in which a person's normal capacity to act or think is inhibited by alcohol or some other drug. A contract entered into by an intoxicated person can be either voidable or valid (and thus enforceable). If the person was sufficiently intoxicated to lack mental capacity, then the transaction may be voidable at the option of the intoxicated person even if the intoxication was purely voluntary. If, despite intoxication, the person understood the legal consequences of the agreement, the contract is enforceable. EXAMPLE: Ted (cafe owner) wins because Bob (farmer) still had the capacity as he corrected the contract even.

Charging an illegal rate of interest.

Most gambling contracts are illegal and void.

Some states and localities prohibit engaging in certain business activities on Sundays. EXAMPLE: liquor, cars

All states require that members of certain professions (e.g. attorneys, doctors, architects, etc) be licensed by the state. EXAMPLE: A state requires a stockbroker to be licensed and to file a bond with the state to protect the public from fraudulent transactions in stocks. Because the purpose of the statute is to protect the public, a court will deem a contract with an unlicensed stock-broker in that state to be illegal and unenforceable.

When the court leaves the parties as they found them.

A contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographic area. EXAMPLE: Kim worked for Little Funeral Home for 2 years, after she worked at Big Funeral Home doing the same thing. Kim has breached the contract and Little Funeral Home would win. However, if she worked at Big Funeral Home as an accountant that would be okay, because she wasn't doing that before.

Even though you have a contract it's not enforceable due to fradulent misrepresentation, undue influence, or duress. EXAMPLE: Alice says to John, " Buy this book or I'll beat you up." John would win because his assent wasn't genuine.

1) A misrepresentation of a material fact must occur. 2) There must be an intent to deceive. 3) The innocent party must justifiably rely on the misrepresentation 4) injury EXAMPLE 1: Bob sells land to Ted by saying the land is flat and beautiful. Ted says okay, but after he purchases the land he found out that it's actually swamp land. Ted wins this case because Bob misrepresented a material fact and intentionally deceived. EXAMPLE 2: Bob sells Ted the land by saying he thinks it's really valuable land. Predictions and expressions of opinion are not fraud (like puffery). EXAMPLE 3: Terrier sells a Picasso painting to Tim. However, Tim finds out it's actually a worthess Jennings! Both parties thought it was a Picasso (mistake of fact). So, the court will unravel the contract also called recission. EXAMPLE 4: Terrier sells a Picasso painting to Tim. Both thinks it's worth 1 million, when it's really only worth $400,000. This is a mistake of value which is enforceable. Example 5: Jim sells Jerry the bull "Ever Ready" to breed. Turns out, "Ever Ready" is "Never Ready." This is a unilateral mistake, because Jim knew "Ever Ready" was "Never Ready." This is unenforceable and Jerry gets his money back and Jim gets his Bull back.

A state statute under which certain types of contracts must be in writing to be enforceable. EXAMPLES: land, contracts that cannot by their terms be performed within one year from the day after the contract is formed, collateral contracts such as promises to answer for the debt or duty of another, promises made in consideration of marriage, and contracts for the sale of goods priced at $500 or more.

The relationship that exists between the promisor and the promisee of a contract. It establishes the basic principle that third parties have no rights in contracts to which they are not parties. EXAMPLE: UMD students sign a lease with their new landlord. They said, if we can't pay my mom will. The landlord contacted their mom's and confirmed this. NO CONSIDERATION IS GOING TO MOM BECAUSE SHE'S A THIRD PARTY. PROMISE TO PAY DEBT OF ANOTHER MUST BE IN WRITING FOR IT TO BE ENFORECEALBLE.

The relationship that exists between the promisor and the promisee of a contract.

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

The act of transferring to another all or part of one' rights arising under a contract. EXAMPLE: WHEN RIGHTS UNDER A CONTRACT ARE ASSIGNED UNCONDITIONALLY, THE RIGHTS OF THE ASSIGNOR ARE EXTINGUISHED. THE THIRD PARTY HAS A RIGHT TO DEMAND PERFORMANCE FROM THE OTHER ORIGNIAL PARTY TO THE CONTRACT. Brent (the obligor) owes Alex $1000, and Alex, the obligee, assigns to Carmen the right to receive the $1000 (thus, Alex is now the assignor). Here, a valid assignment of debt exists. Carment, the assignee, can enforce the contract against Brent, the obligor, if Brent fails to perform (pay $1000). EXAMPLE 2: THE ASSIGNEE OBTAINS ONLY THOSE RIGHTS THAT THE ASSIGNOR ORIGINALLY HAD. ALSO, THE ASSIGNEE'S RIGHTS ARE SUBJECT TO THE DEFENSES THAT THE OBLIGOR HAS AGAINST THE ASSIGNOR. Brent owes Alex $1000 under a contract in which Brent agreed to buy Alex's MacBook Pro laptop. Alex assigns his right to receive the $1000 to Carmen. Brent, in deciding to purchase the laptop, relied on Alex's fraudulent misrepresentation that the computer has only four megabyters of memory, he tells Alex that he is going to return the laptop and cancel the contract. Even though Alex has assigned his "right" to receive the $1000 to Carmen, Brent need not pay Carmen the $1000-Brent can raise the defense of Alex's fraudulent misrepresentation to avoid payment.

(1) If you don't want rights assigned or duties deligated, put it in the contract, if not they're a general rule. (2) Can't deligate duties that are specific services that can only be performed by that person (e.g. Twain)

A third party for whose benefit a contract is formed. An intended beneficiary can sue the promisor if such a contract is breached.

A third party who incidentally benefits from a contract but whose benefit was not the reason the contract was formed. An incidental beneficiary has no rights in a contract and cannot sue to have the contract enforced.

One for whose benefit a promise is made in a contract but who is not a party to the contract.

AFTER the contract is made.

Meaning that the rights have taken effect and cannot be taken away. Until these rights have vested, the original parties to the contract can modify or rescind the contract without the consent of the third party. EXAMPLE: Kids have to wait til AFTER Dad dies to get $ and enforce the contract. Anytime before Dad can change the policy.

Mr. Big offers $10,000 to record them. Bros accept the offer, but want Ray Charles to receive $1,400 and the rest to go the the band. THIS IS ASSIGNMENT OF RIGHTS!!!! RIGHT TO RECEIVE THE MONEY!!!

A contract terminates when both parties perform the activity they promised.

When a party performs exactly as agreed, there is no question as to whether the contract has been performed. Normally, conditions expressly stated in the contract must fully occur in all aspects for complete performance of the contract to take place. Any deviation breaches the contract and discharges the other party's obligations to perform.

A party who in good faith performs substantially all of the terms of a contract can enforce the contract against the other party under the doctrine of substantial performance. Note that good faith is required. Intentionally failing to comply with the terms is a breach of contract. EXAMPLE: Because Tim has substantially performed by putting in ACME rather than Johnson sheet rock. He has materially performed, so his breach isn't material. If the breach had been material, Tom doesn't have to perform. EXAMPLE 2: (1) X Rated Sheet Rock-doesn't start on fire. (2) Tom puts in bathroom sheet rock. This is a material breach because theres a specific reason they needed x-rated sheet rock. EXAMPLE 3: A couple contracts with a construction company to build a house. The contract specifies that Brand X plasterboard is to be used for the walls. The builder cannot obtain Brand X plasterboard, and the buyers are on holiday. The builder decides to install Brand Y instead, which he knows is identical in quality and durability to Brand X plasterboard. All other aspects of construction conform to the contract. In this situation, a court will likely hold that the builder substantially performed his end of the bargain, and therefore the couple will be obligated to pay the builder. Although the court might award the couple damages for the use of a different brand of plasterboard, the couple would still have to pay the contractor the contract price, less the amount of damages.

Damages that compensate the nonbreaching party for the loss of the bargain. These damages compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract. EXAMPLE: You contract with Marinot Industries to perform certain personal services exclusively for Marinot during August for a payment of $4000. Marinot cancels the contract and is in breach. You are able to find another job during August but can earn only $3000. You normally can sue Marinot for breach and recover $1000 as compensatory damages. You may also recover from Marinot the amount you spent to find the other job.

Expenses that are directly incurred because of a breach of contract-such as those incurred to obtain performance from another source.

An assertion or action by a party indicating that he or she will not perform an obligation that the party is contractually obligated to perform at a future time. EXAMPLE: Shasta Corporation contract to manufacture and sell 100,000 personal computers to New Age, Inc. Delivery is to be made two months from the date of the contract. One month later, three suppliers of computer parts raise their prices to Shasta. Because of these higher prices, Shasta stands to lose $500,000 if it sells the computers to New Age at the contract price. Even though you many sympathize with Shasta, its letter is an anticipatory repudiation of contract. New Age can treat the repudiation as a material breach and immediately pursue remedies, even though the contract delivery date is still a month away..