Chapter 9 (complete) – Flashcards
Unlock all answers in this set
Unlock answersquestion
Sources of Contract Law
answer
-Common Law and Statutes -Uniform Commercial Code (UCC)
question
Function of Common Law
answer
Provides stability and predictability for commerce.
question
Definition of a Contract
answer
-Promise or set of promises, -For breach of which, -The law provides a remedy, or -The performance of which the law in some way recognize as a duty.
question
Requirements of a Valid Contract:
answer
-Agreement (Offer and Acceptance) -Consideration: bargained-for-exchange -Contractual Capacity -Legality: purpose of contract must be legal at the time of execution *Some types of contracts must be in writing.
question
Types of Contracts
answer
-Bilateral -Unilateral -Formal -Informal
question
Bilateral Contracts
answer
"Promise for a promise" No performance, such as payment of funds or delivery of goods, need take place for a bilateral contract to be formed. The contract comes into existence at the moment of the promises are exchanged.
question
Unilateral Contracts
answer
"A promise for an act" Promise for performance. Accept by FULLY performing The offer is phrased so that the offeree can accept the offer only by completing the contact performance.
question
Formal Contracts
answer
"Requires a special form for creation" Must be in writing to be enforceable They require a special form or method of creation (formation) to e enforceable. Examples are: Negotiable instruments, Letters of credit.
question
Informal Contracts
answer
"Requires no special form for creation" Is also called simple contracts, they include all other contracts. No special form is required (except certain types of contracts that must be in writing), as the contracts are usually based on their substance rather than their form.
question
Express Terms
answer
"Formed by words" The terms of the agreement are fully and explicitly stated in words, oral or written.
question
Implied Terms
answer
"Formed by the conduct of the parties" Conduct creates and defines the terms of the contract. Requirements: (1)The plaintiff furnished some service or property (2)The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. (3) The defendant has a chance to reject the services or property and did not.
question
Negotiable Instruments
answer
Include checks, drafts, promissory notes, bills of exchange, and certificates of deposit.
question
Letters of credit
answer
Letters of credit are frequently used in international sales contracts, are another type of formal contract. Letters of credit are agreements to pay contingent on the purchaser's receipt of invoices and bills of lading (documents evidencing receipt of, and title to, goods shipped).
question
Contract performance
answer
Contracts are also classified according to the degree to which they have been performed.
question
Executed contract
answer
A contract that has been fully performed on both sides.
question
Executory Contract
answer
A contract that has not been fully performed on either side.
question
Valid Contract
answer
A valid contract has the elements necessary to entitle at least one of the parties to enforce it in court (agreement, consideration, legal capacity of the parties, and legal purpose). It may be enforceable, voidable, or unenforceable
question
Voidable contract
answer
(unenforceable) a valid contract can be avoided or rescinded based on certain legal defenses. aka A party has the option of avoiding or enforcing the contractual obligation
question
Enforceable Contract
answer
A valid Contract that can be enforced because there are no legal defenses against it.
question
Unenforceable Contract
answer
A contract exists, but it cannot be enforced because of a legal defense.
question
Void Contract
answer
No Contract exists, or there is a contract without legal obligations.
question
Agreement
answer
agreement = mutual assent -An essential element for contract formation is agreement. -The Parties must mutually assent to the same bargain. -An agreement has two components: an offer and an acceptance.
question
Offer
answer
An offer is a promise or commitment to do or refrain from doing some specified action in the future.
question
What three elements are necessary under common law for an offer to be effective?
answer
(1) The offeror must have a serious intention to become bound by the offer. (2) The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract. (3) The offer must be communicated to the offeree
question
Offer terms (expressed or implied)
answer
-Identification of the parties. -Object or subject matter of the contract. -Consideration to be paid. -Time of payment, Delivery, or Performance. -A court can supply missing terms if the parties intend to form a contract.
question
Revocation
answer
Revocation is the offerror's act of withdrawing (revoking) an offer.
question
Revocation of Offers for Unilateral Contracts
answer
Offeror cannot revoke promise once performance has begun, for a reasonable time period.
question
Revocation of the Offer by the Offeror
answer
-Offer can be withdrawn any time before Offeree accepts the offer. -Effective when the Offeree or Offeree's agent receives it. The offeror cannot revoke promise once performance has begun, for a reasonable time period.
question
Irrevocable Offer
answer
Offeree has changed position based on justifiable reliance on the offer.
question
Option Contracts
answer
Promise to hold an offer open for a specified period of time in return of consideration.
question
Counteroffer
answer
is a rejection of the original offer and the simultaneous making of a new offer. -Mirror Image Rule
question
Mirror Image Rule
answer
At common law, any change in terms automatically terminates the offer and substitutes the counteroffer.
question
Rejection of the Offer by the Offeree
answer
-Rejection by the Offeree (expressed or implied) terminates the offer. -Effective only when it is received by the Offeror or Offeror's agent.
question
Lapse of Time
answer
Offer terminates by law when the period of time specified in the offer has passed. If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time.
question
Termination by operation of law
answer
1. Lapse of time 2. Destruction of the specific subject matter of the offer 3. Death or incompetence of the offeror or the offeree. 4. Supervening illegality of the proposed contact.
question
Destruction
answer
Termination of an offer by destruction means that the house or smartphone or whatever is destroyed before acceptance of the offer and then the offer is terminated.
question
Death or Incompetence of the Offeror or Offeree
answer
automatically terminates unless irrevocable offer.
question
Supervening Illegality of the Proposed Contract
answer
Legislation or court decision automatically terminates offer or renders contract unenforceable.
question
Acceptance is a:
answer
Voluntary act (expressed or implied) by the Offeree that shows assent (agreement), to the terms of an offer. Unequivocal Acceptance: the "mirror image" rule.
question
Communication of Acceptance: Bilateral Contract
answer
Communication of acceptance is necessary because there is a mutual exchange of promises.
question
Communication of Acceptance: Unilateral Contract
answer
Acceptance is evident, notification is not necessary
question
Communication of Acceptance: Mailbox Rule
answer
Acceptance is effective when offeree SENDS IT.
question
Consideration
answer
Usually is defined as the value (such as cash) given in return for a promise (in bilateral contract) or in return for a performance (in a unilateral contract).
question
What must consideration have?
answer
-"legally sufficient value" -Promise, -Performance, or -Forbearance. and -a "Bargained-for-Exchange"
question
Adequacy of Consideration
answer
-Courts typically will not consider. -Law does not protect a person from entering into an unwise contract. -Cases of "shockingly inadequate consideration" may raise a red flags, and be ruled unconscionable.
question
Agreements that Lack Consideration
answer
-Preexisting Duty -Past Consideration
question
Preexisting Duty
answer
Promise to do what one already has a legal duty to do does not constitute legally sufficient consideration
question
Past Consideration
answer
is no consideration because the bargained-for exchange element is missing.
question
Rescission
answer
is the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made.
question
Promissory Estoppel (reliance)
answer
-Must be definite promise -Promisee must justifiably rely on the promise -Reliance is substantial -Justice will be served by enforcing promise
question
Contractual Capacity
answer
the legal ability to enter into a contractual relationship
question
Minors and Contractual capacity
answer
A contract can be disaffirmed at any time during minority, or for a reasonable period after minor is emancipated. However, a contract entered into by a minor is voidable at the option of that minor, and can be disaffirmed.
question
Intoxication and Contractual Capacity
answer
Lack of capacity at the time the contract is being made. Contract is either voidable or valid depending on circumstances. Disaffrimance (voidable) Ratification: after "sobering up"
question
Mental Incompetence and Contractual Capacity
answer
Void: person is adjudged mentally incompetent by a court of law and a guardian has been appointed. Voidable: person does not know she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences.
question
Legality
answer
A contract must be formed for a legal purpose. A specific clause in contract can be illegal, but rest of contract can be enforceable. Contract to commit a tortious act is illegal.
question
Contracts Contrary to Statute
answer
Prohibited by federal or state statutory law is illegal and therefore ¬void (never existed). Includes: Contracts to commit a crime Usury (a lender who makes a loan above the lawful max) Gambling
question
Contracts Contrary to Public Policy
answer
Contracts contrary to public policy are void. Contracts in Restraint of Trade are generally void. Exception: Covenant not to complete; time & geographic terms are reasonable.
question
Unconscionable Contracts
answer
are so unscrupulous or grossly unfair as to be "void of conscience" Includes: Procedural Unconscionability and Substantive Unconscionability.
question
Procedural Unconscionability
answer
Inconspicuous print or legalese, or the lack of an opportunity to read the contract or ask questions about its meaning. Depends on a party's lack of knowledge or expertise.
question
Substantive Unconscionability
answer
Contracts are oppressive or overly harsh; that deny a remedy for nonperformance.
question
Voluntary Consent
answer
A contract may be unenforceable if the parties have not genuinely assented to its terms by: -Mistakes -Misrepresentation -Undue Influence -Duress
question
Mistakes
answer
Mistakes of Fact: allow a contract to be canceled. Includes Mutual Mistakes and Unilateral Mistakes
question
Mutual Mistake
answer
concerns the same material fact, and can be rescinded by either party.
question
Unilateral mistakes
answer
Unilateral mistakes cannot be canceled unless: -The other party to the contract knows or should have known, OR -Mistake was due to an inadvertent mathematical mistake and was not gross negligence.
question
Fraudulent Misrepresentation
answer
-Contract is Voidable by Innocent Party -Consists of the Following Elements: Misrepresentation of Material Fact Intent to Deceive Reliance on Misrepresentation Injury to the innocent party -Misrepresentation by Conduct -Misrepresentation of Law -Misrepresentation by silence
question
Misrepresentation by Conduct
answer
occurs when a party takes specific action to conceal a fact that is material to the contract
question
Misrepresentation of Law
answer
does not entitle a party to relief
question
Misrepresentation by Silence
answer
Fiduciary Duty
question
Undue Influence
answer
Contract lacks voluntary consent and is voidable. -Confidentiality, fiduciary, or relationship of dependence -Undue influence or persuasion is presumed is a weaker party talked into doing something not beneficial to him or herself.
question
Duress
answer
Forcing a party to enter into a contract under fear or threat makes the contract voidable. -Threatened act must be wrongful or illegal and render person incapable f exercising free will. -Threat of civil suit is not duress.
question
The Statute of Frauds
answer
Some Contracts must be in writing to be enforceable: Contracts with an Interest in Land Contracts involving "one-Year Rule" Collateral or Secondary Contracts Promises made in consideration of marriage Contracts for sales of goods over $500
question
Third party rights
answer
a third party is one who is not a direct party to a particular contract and normally does not have rights under that contract.
question
Third party beneficiary contract
answer
a contract in which the parties to the contract intend that the contract benefit a third party.
question
Privity of Contracy
answer
Only original parties to a contract have rights and liabilities under the contract. There are exceptions: Assignment (of rights) Delegation (of duties) Third Party Beneficiary Contract
question
Assignment
answer
is a transfer of contractual rights to a third party
question
Delegation
answer
Transfer of contractual duties to a third party.
question
Assignor
answer
Party assigning rights to a third party
question
Assignee
answer
Party receiving rights
question
Obligee
answer
Person to whom a duty or obligation is owed.
question
Obligor
answer
Person who is obligated to perform the duty.
question
Effect of an assignment
answer
When rights of assignor are unconditionally assigned, her rights are extinguished The third party (assignee) has right to demand performance from original party to contract.
question
"All rights can be assigned" exception to this are:
answer
(1) The assignment is prohibited by statute. (2) The contract is personal. (3) The assignment significantly changes the risk or duties of the obligator. (4) The contract prohibits assignment.
question
Delegator
answer
Party making the delegation of duty The Delegator remains liable, even after the delegation.
question
Delegatee
answer
Party to whom the duty is owed The Delegatee is liable if he delegation contract creates a third party beneficiary relationship in the oblige
question
When the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person, the third person becomes an:
answer
Intended third party beneficiary
question
As the ___ ___ of the contract, the third party has legal rights and can sue the promisor directly for breach of the contract.
answer
intended beneficiary
question
Creditory
answer
beneficiary benefits from a contract in which promisor promises the promise to pay a debt the promise owes to a third party (creditor beneficiary)
question
Donee Beneficiary
answer
Contract is made for the express purpose of promisor giving a gift to a third party (donee), the donee can sue the promisor directly if the promisor breaches the contract.
question
Intended beneficiary
answer
promise intended to confer on the beneficiary the right to bring suit to enforce the contract.
question
Incidental beneficiary
answer
a third party benificiary's benefit from contract between two parties is unintentional Incidental beneficiary cannot sue to enforce the contract
question
Suppose that Jack and Hal and Sophia enter into an agreement to sell the restaurant. The contract includes the non-competition agreement. A few months later, Jack decides that he will sell the frozen food in violation of non-competition agreement unless if Hal and Sophia agree to pay him an extra $100,000. Hal and Sophia agree since they do not want to fight. Six months later, however they still have not paid and Jack sues. What is the result?
answer
d.Hal and Sophia would win, since Jack already had a prior existing legal duty to not compete with Hal and Sophia.
question
Suppose that Jack and Hal and Sophia enter into the agreement for the sale of the restaurant, with Jack stating in the agreement that if he feels comfortable with his finances in his retirement, that he will not sell the frozen food in competition with the restaurant. After the sale, the stock market rises considerably, and Jack's net worth quadruples. He still decides to sell the frozen food. Hal and Sophia sue. What is the result?
answer
Jack would win since the promise not to compete was illusory.
question
Suppose that Jack and Hal and Sophia enter in to a contract for the sale of the business. Jack however was drunk at the time that the negotiations took place and at the time of the signing of the contract. Please decide.
answer
The contract is valid unless Jack did not know he was entering into the contract or lacked the mental capacity to comprehend its nature.
question
Assume that the contract was voidable due to Jack's intoxication. Two years later Jack sues to undo the contract for the sale. Which of the following would be Hal and Sophie's best defense against this action?
answer
That Jack, by waiting two years ratified the contract.
question
Assume that a contract was entered into for the sale of the restaurant, and that the sale included the covenant not to compete. Which of the following is true?
answer
The covenant not to compete must be reasonable in geographic scope to be valid.
question
Suppose that Jack and Hal and Sophia enter in to a contract for the sale of the restaurant. Hal and Sophia inventory the restaurant and they find that there was a case of bald eagle meat in the refrigerator, which is illegal to possess. This was unknown to them at the time of the agreement. Which of the following is true?
answer
The contract would likely sever the illegal part of the contract and allow for the contract for the sale of the business to be enforced.
question
People make promises all the time, so promises have little to do with contract law.
answer
False: A person to whom a promise is made has a right to expect or demand that something either will or will not happen in the future—that is the basis of contract law. See An Overview of Contract Law.
question
At a given point in time, contract law does NOT reflect which of the following?
answer
Our physical well-being
question
Promises that involve moral obligations are the basis of contract law.
answer
False
question
A contract is:
answer
a promise or agreement that can be enforced in court.
question
What 3 actions (examples) potentially involve contractual relationships that the courts might enforce.
answer
-Buying a house -Buying insurance -Buying the services of a lawyer
question
Promisee
answer
A person to whom a promise is made.
question
Contract
answer
An agreement that can be enforced in court, formed by two or more parties, each of whom agrees to perform or to refrain from performing some act now or in the future.
question
Promisor
answer
A person who makes a promise
question
The objective theory of contracts tells us that a party's intention to enter into a legally binding agreement is judged by the personal belief of at least one of the parties.
answer
False
question
Requirements for a valid contract do NOT include:
answer
a fair price.
question
When a court examines the objective facts surrounding contract formation, which of the following does it NOT examine?
answer
If the party had the flu while negotiating
question
What are the 4 requirements for a valid contract?
answer
-Consideration -legality -agreement -contractual capacity
question
Even when all of the requirements are satisfied, a contract may be unenforceable. 2 major defenses to enforce-ability of an otherwise valid contract are:
answer
-Delay -Inaccuracy
question
Unilateral
answer
A promise for an act (acceptance is the completed performance of the act).
question
Bilateral
answer
A promise for a promise
question
Implied
answer
Formed by the conduct of the parties
question
Formal
answer
Requires special form for creation
question
Informal
answer
Requires no special form for creation
question
Express
answer
Formed by words (oral, written, or a combination)
question
If the offeree can accept simply by promising to perform, then the contact is unilateral.
answer
False
question
Assume that Eva tells Maria that she will buy Maria a new dress if Maria reads a book by Friday night. Maria begins reading but has a chapter left to finish when Eva says she has changed her mind and will not pay for the new dress. Under the modern approach to contracts, Eva and Maria:
answer
Formed a unilateral contract as soon as Maria began reading the book
question
An implied contract differs from an express contract in that the conduct the parties creates and defines the terms of the contract.
answer
True
question
Pete calls A-1 Towing when his car won't start. He tells the dispatcher the location of the car, but does not ask for a price and leaves before the tow truck arrives. He obviously does not talk to the driver and does not sign any documents. Therefore, Pete:
answer
owes A-1 for towing his car under an implied contract
question
Executory Contract
answer
A contract that has not as yet been fully performed
question
Executed contract
answer
A contract that has been completely performed by both parties.
question
Valid Contract
answer
A contract that has the necessary contractual elements: agreement, consideration, legal capacity of the parties and the legal purpose.
question
Void Contract
answer
No contract exists, or there is a contract without legal obligations
question
Enforceable Contract
answer
A valid contract that can be enforced because there are no legal defenses against it.
question
Voidable Contract
answer
A party has the option of avoiding or enforcing the contractual obligation
question
Unenforceable Contract
answer
A contract exists, but it cannot be enforced because of a legal defense.
