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Contract

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A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty...simply an agreement that can be enforced in a court of law. Between two or more parties who agree to perform or to refrain from performing some act now or in the future.

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Common Law

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A contract for the sale/purchase of real estate is governed by what type of law?

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Contract Requirements

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There must be an agreement "meeting of the minds" which includes an offer and an acceptance (offeror/offeree). Consideration, something of value received or promised, such as money to convince a party to make a deal. Capacity, legal contractual capacity (above the age of 18) or mentally capable, and not under duress. Legal purpose - the contract must have legal purpose - not against public policy.

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Bilateral Contract

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"A promise for a promise". No performance, such as payment of funds or delivery of goods need take place for this type of contract to be formed. The contract comes into existence at the moment the promises are exchanged. Ted offers to buy Sarah's phone when he gets paid on Friday. Sarah agrees to give Ted the phone when he pays her on Friday.

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Unilateral Contract

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"A promise for an act". This contract is formed at the moment the "performance" is formed. Paul offers Mark $50.00 to cut his grass, only upon completion of Mark cutting the grass does the contract form. If Mark chooses not to cut the grass there are not legal consequences.

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Agreement

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This includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer. One of four requirements necessary to form a contract.

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Consideration

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Something of value received or promised, such as money to convince a person to enter into a contract. Someone is giving something up and someone is gaining or receiving something. One of four requirements necessary to form a contract. In a bilateral agreement this may be cash. In a unilateral agreement this would be performance.

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Legal Purpose

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A contract must be of legal purpose and not against public policy. One of four requirements necessary to form a contract.

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Contractual capacity

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Someone entering into a contract must be over the age of 18 in most states (not a minor) of sound mental health, and not under duress. One of four requirements necessary to form a contract.

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Express contract

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The terms of this agreement are fully and explicitly stated in words, oral or written. Example: a signed lease for an apartment or a house, or a classmate offers to buy your books from last semester for $300.00. Both are an example of this type of agreement.

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Implied contract

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This type of contract is based on the conduct of the parties, rather their words. Example: You go to a restaurant and order dinner; it is expected you would pay for the wings.

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Valid Contract

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This type of contract has the elements necessary to entile at least one of the parties to enforce it in court. Those elements include an agreement (offer and acceptance), legally sufficient consideration, made by two parties who have legal capacity, and has legal purpose.

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Void Contract

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This is in essence no contract at all. There are no legal obligations by either party. Example: a court might find an individual mentally incompetent or there was no legal purpose to this type of contract

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Voidable Contract

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This is a valid contract but one that can be avoided at the option of one or both parties. The party having the option can either elect to avoid any duty to perform or ratify (make valid) the contract. If the contract is avoided both parties are released. Example: a contract made by a minor, or mentally incompetent persons and intoxicated parties, contracts entered into under fraudulent conditions, and those made under duress.

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Unenforceable Contract

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A contract exists, but it cannot be enforced because of a legal defence. A party has failed to satisfy a legal requirement of the contract. There may be some state statute or law against this contract. Example: the contract may have to be in written form; or a contract for prostitution services.

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Quasi Contracts

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Contracts "implied in law" - not actual contracts. Latin for "as if". This type of contract does not arise from any agreement, express or implied. Imposed by the courts "as if" a contract existed. Contracts are equitable rather than legal in nature. Imposed to avoid the "unjust enrichment of one party at the expense of another.

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Mirror image rule

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In common law the offeree's acceptance to match the offeror's offer exactly is referred to as this.

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The Plain Meaning Rule

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The words - and their plain, ordinary meaning determine the intent of the parties at the time that they entered into the contract. A contract's writing is clear and unequivocal.

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Ambiguity

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A court will consider a contract to be this in the following situations: 1.) Intent of the parties cannot be determined from the contract's language 2.) The contract lacks a provision on a disputed term 3.) When a terms is susceptible to more than one interpretation 4.) When there is uncertainty about a provision. Unclear in meaning.

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Extrinsic evidence

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If a contract term is ambiguous a court will consider this, evidence outside the contract or interpret the ambiguity. Any evidence not contained in the document itself - such as testimony of the parties and witnesses, additional agreements or communications, or other relevant information.

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Mutual Assent

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Essential element of a contract is agreement. Parties must agree on the terms of the contract and manifest to each other their agreement. Evidenced by two events: an offer and an acceptance. This agreement by two parties is called what?

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Offer

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A promise or commitment to do or refrain from doing some specified action in the future is referred to as this.

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Elements necessary for an Offer to be effective

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An offeror must have a serious intention to become bound by the offer. Ther terms of the offer must be reasonable and certain, or definite so that the parties and the court can ascertain the terms of the contract, and the offer must be communicated to the offeree.

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Revocation

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This is the offeror's act of withdrawing or revoking an offer. One form of terminating an offer. An offeror can revoke an offer (as long as there is no irrevocable clause) as long as it is communicated to the offeree before the offeree accepts.

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Irrevocable Offers

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A contract that can't be revoked. In some cases "firm offers" made by merchants may not be allowed to do this when making an offer. Promissory estoppel or detrimental reliance is used by the courts to determine whether this type of offer can be revoked.

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Option contract

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A form of an Irrevocable offer. This is a contract created when an offeror promises to hold an offer open for a specified period of time in return for a payment (consideration) given by the offeree. This takes the offeror's power to revoke the offer for the period of time specified in the contract.

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Rejection

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Accomplished by words or actions that demonstrate a clear intent not to accept the offer; not effective until received by the offeror or the offeror's agent.

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Counteroffer

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A rejection of the original offer and the simultaneous making of a new offer.

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Termination by Operation by Law

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The power given to the offeree to transform the offer into a binding, legal obligation can be terminated by this law for and of the following events. 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 contract, a statute or court decision that makes an offer illegal.

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Preexisting Duty

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A promise to do what one already has a legal duty to do. Example: A lifeguard on duty saves someone from drowning. Or a person is already bound by contract to perform a certain duty, that duty cannot serve as consideration for a second contract. Example: A construction company starts a project and three months into the project requests more money. The construction company already has this to perform the contract.

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Rescission

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This is the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made.

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Past Consideration

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Promises made in return for actions or events that have already taken place are unenforceable. This type of promise lacks consideration in that the element of bargained for exchange is missing. You can bargain for something to take place now or in the future but not for something that has already taken place. Therefore, this is no consideration.

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Unforeseen Difficulties

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This occurs during the performance of a contract which may involve extraordinary difficulties arising that were not known at the time of the contract. Example: A builder is contracted to erect a house, but during construction of the foundation finds a rock formation that needs to be moved to finish the foundation. To remove the rock formation $50,000.00 extra needs to be added to the contracts original price.

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Mailbox Rule

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This states that acceptance of a contract is effective upon dispatch by an authorized means of dispatch.

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Release

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A contract in which one party forfeits the right to pursue a legal claim against the other party. It bars any further recovery beyond the terms of the release. It is binding if it meets the following requirements. 1. The agreement is made in good faith (honesty). 2. The release contract is in a signed writing 3. The contract is accompanied by consideration.

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Exceptions to the Consideration Requirement

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Promises to pay debts that are barred by a statute of limitations. Promises to make charitable contributions and promises that induce promissory estoppel are considered what type of exceptions.

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Promissory estoppel - detrimental reliance

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A person who has reasonably and substantially relied on the promise of another - applied to a wide variety of contexts in which a promise is otherwise unenforceable.

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Requirements to State a Claim - Promissory estoppel

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For promissory estoppel to take place the following elements are required: 1. There must be a clear and definite promise 2. The promisor should have expected that the promisee would rely on the promise 3. The promisee reasonably relied on the promise by acting or refraining from some act 4. The promisee's reliance was definite and resulted in substantial detriment 5. Enforcement of the promise is necessary to avoid injustice. If these requirements are met, a promise may be enforced even though it is not supported by consideration.

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Unilateral mistake

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This is a mistake made by only one of the parties. Elena intends to sell her jet ski for $2500.00. She learns that Chin is interested in buying a used jet ski, she sends him an email offering to sell the jet ski to him. When typing the email however, she mistakenly key sin the price of $1500.00. Chin immediately sends Elena an email accepting her offer. Even though she intended to sell the jet ski for $2500.00 she made what type of mistake and is bound by the contract to sell it to Chin for $1500.00.

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Bilateral mistake

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This type of mistake in a contract can be rescinded by either party. Both parties are mistaken about the same material fact. A word or term in a contract may be subject to more than one reasonable interpretation. If the parties to the contract attached materially different meanings to the term, a court may allow the contract to be rescinded because there was no true "meeting of the minds".

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Unilateral mistake is enforceable unless this occurs

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Other party knew or should have known that a mistake was made or the mistake was due to substantial mathematical error,made inadvertently and without gross negligence.

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Mistakes of Value

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This type of mistake involves the future value or quality of the object of the contract. This type of contract is enforceable. Value is variable, depending on the time, place, and other circumstances, the item may be worth considerably different amounts.

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Fraudulent Misrepresentation consists of these elements

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A misrepresentation of a material fact must occur. there must be an intent to deceive, the innocent party must justifiably rely on the misrepresentation, and to collect damages, party must have been harmed as a result of the misrepresentation.

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Misrepresentation by Conduct

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This type of misrepresentation occurs when a party takes specific action to conceal a fact that is material to the contract. If a seller by her or his actions, prevents a buyer from learning of some fact that is material to the contract this behavior constitutes a misrepresentation by what?

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Innocent Misrepresentation

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This type of misrepresentation occurs if a person makes a statement that she or he believes to be true but that actually misrepresents material facts, the person is only guilty of this - not fraud. An aggrieved party can rescind the the contract, but usually not damages. The party here does not have any knowledge of their mistake.

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Negligent Misrepresentation

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This type of misrepresentation occurs when a party will make a misrepresentation through carelessness, believing the statement is true. If the party did not exercise reasonable care in uncovering or disclosing the facts or use the skill and competence that her or his business or professions requires, this constitutes this misrepresentation. (Example: An operator of a weight scale certifies the weight of Sneed's commodity, even though the scales' accuracy has not been checked for more than three years. This type of misrepresentation if considered to be fraudulent in most states.

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Covenant Not to Compete

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Usually drawn up by an employer. Preventing a trained employee from leaving and taking the businesses clients or starting their own business. Contracts preventing an employee from competing in a certain time frame or geographic area.

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Ratify or Ratification

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This occurs if a minor entered into an agreement and fails to disaffirm the agreement within a reasonable time after reaching the age of majority.

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Reformation

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This occurs when a covenant not to compete may be too broad in time and geographic area the court is able to reform the contract to prevent undue burdens or hardships. An equitable remedy.

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Snap Up

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This is a term used in dealing with someone who knows something is worth more value than the person selling the items knows. This prevent the person from taking the deal.

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Usury Laws

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Prevents person's or business's from charging an outrageous interest rate. Ensures a maximum interest rate to be charged for different types of transactions, including ordinary loans.

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Latent defects

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This occurs when a seller knows of a serious potential problem that the buyer cannot reasonably be expected to discover, the seller must disclose/speak of the problem.

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Statue of Frauds

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This is a statute which states stipulate what types of contracts must be in writing.

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Undue Influence

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This arises from relationships in which one party greatly influences another party, thus overcoming that party's free will. A contract entered into under this dominance lacks voluntary consent and is therefore voidable.

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Duress

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This is defined as the use of threats to force a party to enter into a contract out of fear - example: the threat of violence or economic pressure. The party forced to enter into the contract can rescind the contract.

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Types of contracts that must be in writing

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MYLEGS - Marriage, One year contracts (those impossible to complete in a year), Land (real estate), Executors - Wills, Sales of Goods over $500.00 (tangible goods) and Surety agreements (guaranteeing the debt of another - joint debt)

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Partial Performance - Exception to the Writing Requirement

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This occurs when a contract has been partially performed and the parties cannot be returned to their positions prior to the contract, a court may grant specific performance - an equitable remedy that requires performance of the contract according to its specific terms.

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Admission - Exception to the Writing Requirement

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This occurs when someone admits under oath to a oral contract. The courts will enforce the contract.

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Special Exceptions - Exception to the Writing Requirement

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This applies to sales contracts under the UCC. Oral contracts for customized goods may be enforced, as well as oral contracts between merchants that have been confirmed in a written memorandum.

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Constitutes the Writing Requirement

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Any confirmation, invoice, sales slip, check, fax or email.

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Parole Evidence Rule

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Oral evidence - Evidence not in the contract itself - communicated between the parties through discussions. Example: A landlord tells a tenant that pets are allowed, though the lease agreement states otherwise.

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Integrated contract

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This is a contract intended to be the complete and final statement of the terms of the agreement.

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Partially Integrated contract

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A contract that contains only some of the terms that the parties agreed on and not others.

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Exceptions to the Parole Evidence Rule

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Contracts subsequently modified/modified after entered into; Voidable or void contracts, incomplete contracts, prior dealing - course of performance or usage of trade; contracts subject to an orally agreed on condition and contracts with typos that clearly don't represent the contract.

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Assignment

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The transfer of contractual rights to a third party. Occurs after the original contract is made.

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Delegation of Duties

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The transfer of contractual duties to a third party. Occurs after the original contract is made.

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Assignor

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The party assigning the rights to a third party.

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Assignee

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The party receiving the rights.

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Obligee

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The person to whom a duty or obligation is owed.

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Obligor

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The person who is obligated to perform the duty.

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Rights that cannot be assigned

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The assignment is prohibited by statute. The contract is personal. The assignment significantly changes the risk or duties of the oligor. The contract prohibits assignment.

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Delegator

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The party delegating duties.

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Delegatee

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The party to whom the duties are delegated.

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Complete Performance

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When a party performs exactly as agreed. When performance is perfect.

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Third party beneficiaries

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Occurs when the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person.

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Adhesion Contracts

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Concerns one-sided bargains in which one party has substantially superior bargaining power and can dictate the terms of a contract.

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Unconscionable Contracts

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This type of contract occurs as a result of: 1. Standard form contracts which have fine print provisions. 2. Take it or leave it adhesion contracts which the buyer has no choice but to sign. Usually these apply to sale of good contracts

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Procedural Unconscionability

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This arises when one party fails to read the contract (reasonable time to read it) or it contained small print - language not understood by the average person.

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Substantive Unconscionability

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This exists when a contract is oppressive or overly harsh to one party.

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Exculpatory Clause

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This releases a party from liability in the event of monetary or physical injury "no matter who is at fault". Example: A doctor would have you sign a contract with a clause preventing you from filing a malpractice suit. Usually never enforceable. Viewed as violating public policy.

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Discharge of Duties

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Discharge by performance of a contract.

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Executory Contract

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This is a contract not fully performed by the parties.

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Executed Contract

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A contract that has been fully performed on both sides.

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Not considered an offer

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Expressions of opinion, statements of future intent, advertisements, preliminary negotiations (a request or invitation to negotiate.

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Express Authorization

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When an offeror specifies how acceptance should be made (example: FedEx).

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Accord and Satisfaction

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A debtor offers to pay,and a creditor accepts, a lesser amount than the creditor originally claimed was owed.

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Accord

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The agreement between a creditor and a debtor.

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Satisfaction

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The performance (usually payment) that takes place after the accord is executed.

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Adequacy of Consideration

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This relates to how much consideration is given and whether a fair bargain was reached. The courts will inquire into this (if the consideration is legally sufficient) only when fraud, undue influence, duress, or the lack of bargained for exchange may be involved.

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Discriminatory Contracts

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Contracts in which a party promises to discriminate according to race, color, national origin, religion, gender or age.

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Statutes of Limitations

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This restricts the period during which a party can sue on a particular cause or action. After a period of time has passed a suit can no longer be brought.

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Breach of Contract

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This is the result of nonperformance of a contractual duty.

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Types of Damages

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Compensatory (to cover direct losses and costs). Consequential (to cover indirect and unforeseen losses). Punitive (to punish and deter wrongdoing). Nominal (to recognize wrongdoing when no monetary loss is shown.

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Compensatory Damages

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This is damages awarded to the nonbreaching party for the loss of the bargain. Damages are for only what was actually sustained and proved to have arisen directly from the loss. "Make the person whole".

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Standard Measure

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The measurement used for compensatory damages is the difference between the value of the breaching party's promised performance under the contract and the value of her or his actual performance.

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Consequential Damages

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Foreseeable damages that result from a party's breach of contract. Also called special damages. Damages caused by special circumstances beyond the contract itself. Example: A seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, a court may award these damages for the loss of profits from the planned sale.

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Restitution

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Returning goods, property, or funds previously conveyed. If the goods can be returned they must be. If they have been consumed then the goods must be paid for in equivalent value.

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Specific Performance

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This is an equitable remedy that calls for the performance of the act promised in the contract.

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Liquidated Damages

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A provision in a contract which specifies that a certain dollar amount is to be paid in the event of a future default or breach in the contract.

Business Law SSU Chapters 11-17 & 19 – Flashcards

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