question

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.

Chapter 9 (complete) – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards