Contract Basics Flashcards
(10 cards)
Contract
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 a duty.
Unilateral Contract
Promise for performance
Bilateral Contract
Promise for a promise (in case of doubt, courts assume a bilateral contract)
Promise
Manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made.
i. Promises must have consideration in order to be enforceable otherwise it’s a naked promise.
a. Promisor-The person making the intention
b. Promisee-The person to whom the manifestation is addressed
c. Beneficiary-The person that benefits from the performance of a promise other than the promisee
Mutual Assent
Both parties must intent to contract, and they must agree on at least the main terms of their deal.
Objective Theory of Contracts
Mutual assent depends on what the offeree believes, from a reasonable person standard, what offeror intended. If offeree knows or should know, that offer didn’t intend to contract, then offeree doesn’t have the power of acceptance.
i. When parties know a written instrument will be executed, the objective intent to be bound before the instrument is signed must be proven by the party who wishes to enforce it.
Exceptions: death or incapacity of offeror and mailbox rule
Option Agreement
Promise to keep Offer open for a certain period of time. It is a contract separate from the underlying/ultimate contract.
Must be in writing and have consideration
i. Consideration doesn’t actually have to be paid to be binding, but must be stated in the option agreement
Irrevocable
i. If no consideration, the option becomes revocable, but it doesn’t destroy the offer. Offeree can still accept the offer before offeree revokes.
Partial Performance = Option Contract – When offer is for performance (unilateral), an option contract is created when offeree begins the invited performance or tenders part of it.
Death Doesn’t Terminate - Option remains open even upon death of optionor; nothing kills the option because an option is an enforceable contract.
Notice Required - Acceptance of Option Contract must be communicated to offeror to be effective (mailbox rule doesn’t apply).
Deficient Agreement
MUTUAL MISUNDERSTANDING
When the parties to a contract have a misunderstanding about a material term in the contract and neither party knows or has reason to know of the misunderstanding, there is no mutual assent and therefore no contract.
INDEFINITENESS
Even though a manifestation of intent is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms are reasonably certain. The terms are reasonably certain if they provide a basis for determining a breach and for giving a remedy. One or more terms left uncertain may show a manifestation of intent is not intended to be an offer or acceptance, but mere negotiations.
INCOMPLETE TERMS / AGREEMENTS TO AGREE
The parties may form a contract with an essential term unfilled, intending to agree upon that term in the future. Under common law, agreements to agree are usually held invalid because they are fatally indefinite.
Consideration
A bargained for exchange whereby the promisor receives some benefit or the promisee suffers a detriment.
Benefit – Simply that Promisor got what he bargained for
Detriment – Could take the form of an immediate act, a forbearance, or the partial or complete abandonment of an intangible right
General Rule Consideration is a bargained for exchange whereby the promisor receives some benefit or the promisee suffers a detriment. A return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. The performance sought may consist of an act, a forbearance, or modification of an existing legal relation. The adequacy of the consideration is irrelevant.
Three Functions of Consideration:
Evidentiary - evidence that K exists
Cautionary - requires parties to be serious
Channeling - Signals to the world
Shows everyone/the court the seriousness of the parties
BARGAINED FOR EXCHANGE
A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
The performance may consist of:
- An act other than a promise; or
- A forbearance; or
- A return promise; or
- An act, forbearance or return promise by a third person; or
- A promise or act by the promise, delivered to a third person rather than the promisor
