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Flashcards in Contract Law Deck (60)
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1

Contract Definition

- Express (terms and conditions are expressly stated) or Implied
- binding agreement
- between 2 or more parties
- to perform or not perform an act or undertaking

2

Types of Contracts - Overview

1. Bilateral vs unilateral (I promisse money to whom finds my cat, but now one is obligated to find my cat and if they do I have to keep my word)
2. Executed vs executory
3. Express or implied (does not exist in form but is implied by acts or circumstances)
4. Promise - A legally enforcable promise is a contract
5. Quasi-contract - not properly a contract, but is created by the law in the absence of a contract where the law implies a contract as a matter of equity, justice and good concience (add example). Quasi contract is a Contract in law
6. Unenforcable contract - Not possible to be enforced by legal proceedings. For example if contract is oral but the law requires it to be in writting then it is unenforcable. It can be a valid contract
7. Void Contract - Contract lacking one or more of the essential elements of a contract and is therefore not legally binding
8. Voidable contract - It can be voided if rescinded but it remains valid if not rescinded

3

Contract Participants

1. Promisee vs Promisor (same as obligor/obligee)
2. Obligee (owed performance) vs Obligor (has a duty)
3. Joint Obligees are two or more ppl owed a single performance
4. Several Obligees are owed each an individual performance
5. Joint Obligors - the obligees can hold any of the obligors responsible for the entire performance and the obligor is entitled to reimburssement from the other joint obligors
6. Several Obligors are two or more obligors who promise the same performance in the alternative - Discharge of one does not discharge the others. Obligee is only entitled to one performance

4

Assignment and exceptions

A contract right can ordinarly be assigned from the person to whom it is owed (assignor) to another (assignee) unless
- the obligor does not permit it AND the right is personal to the promisee and it involves a confidential relationship between the parties
- the obligor does not permit it AND the duty, the burden, the risk or the chances of obtaining return performance for the obligor would be materially impacted
- assignement is prohibited by the contract

5

Assignee's rights against obligor

-The assignee takes whatever rights the assignor had against the obligor but no more
- Payment as defense - if the obligor pays before he/she gets the notice of the assignment then assigment is mute
- Counterclaims - (?)
- Non consumer contracts under UCC-9-403 (contract for sale of inventory or business-use equipment.

6

Assignee vs Assignor

1. A valid Assignemnt is effective between assignee and assignor even without obligor notice
2. If Assignor receives the performance than assignee can recover from them
3. If assignor wrongfully assigns the same right to multiple assignees than one of the two prevails
a. The one who received the right first
or
b. The one that notified the obligor first
(question notice sent or received)
4. An assignor can revoke a gratuitos assigment unless
a. the obligor did not give permission AND there is a promissory estoppel
b. the obligor did not give permission and and the assignor delivers either a tangible doc or a written assignment
c. the obligor did not give permission AND the assignee collected the obligation before the attempted revocation

7

Delegation

- Delegator and Delegatee
- Delegation does not strip the delegator of the duty
- The delegator remains liable until someone performs
- Certain dutties cannot be delegated
a. Personal performance dutty - the substitute performance would differ materially from thart agreed upon
b. Law or contract - a statute, common low or the contract may forbit the transfer

8

Contract Elements

A cold sip of Cola
1. Agreement
2.Consideration
3.Statute of Frauds
4.Capacity
5.Offer
6. Legal Subject matter (legality)
7. Acceptance

9

1. Agreement

1. Mutual assent by both parties, containing all the conditions included in the offer - Mirror Acceptance Rule
2.Expressed or inferred from a party's conduct
3.Objective rule of contract - each party is bound by the intention they manifest toward the other party, instead of their subjective intent

10

5. Offer Characteristics

1. The offeror must intend to make an offer
2. Objective rule is applied so it might find intent if a reasonable person could read the actions as intent.
3. Invitation to make an offer vs Offer- the courts will see the language used as well as the surrounding circumstances, customs in the industry, prior practices between parties
->Advertisment is usually an invitation to make an offer unless specific language such as first come first served
-> Rewards are an offer to form a unilateral contracy accepted only by performance
4. an offer must be definite and certain
5 However terms commonly left open are , price, time and method of delivery, method of payment.
6. Article 2 of the UCC requires only the qty to be certain
7. Identification - offeree or offerees need to be identifable
8. Subject matter - the offer needs to identify the matter adequatly

11

5b. Offer Types

1. Written
2. Oral
3. implied
4. General (addressed to whomever accepts) or specific
5. Continuing offer - results in a series of contracts through successive acceptance
6. Illusory offer - In contract law, an illusory promise is one that courts will not enforce. ... For example, a promise of the form, "I will give you ten dollars if I feel like it," is purely illusory and will not be enforced as a contract (no mutuality of obligation)

12

5c. Offer Termination

1. If the offer ends then the offeree cannot acept any more and if it does then it has created a new offer
2. The offer can be terminated by:
I. the offferor at any time prior to acceptance even if it said that it would be open for a fixed period
II. Lapse of time
- Specified time
- Non specified time - a reasoble amount of time
III.Offer provisions - example as long as supply lasts
IV. Rejection - rejection communicated either by word or by act - valid only upon receipt
- A counter offer is a rejection and a new offer
- An Inquiry about the addition of terms is not a counter offer
V. Death or insanity of the offeror or a specific offer terminates the offer.
VI. Bankruptcy or Insovency of either the offeror or the offeree terminates the offer
VII. If the object of the offer is or becomes illegal or impossible prior to acceptance

13

Void and Voidable Contracts

Fraud in execution - they didnt know they were signing a contract - Void
Fraud in the inducement - they knew that they wer signing a contract but they didnt understand or know what they were signing - Voidable
Not competent to contract - Voidable
Undue Influence - Parent over a child for example - Voidable
Extreme Duress- Violence, blackmail etc - Void
Simple duress - What is this ? - Voidable
Illegal - Void
Error - Unenforcable

14

3. Statute of Frauds

The statute of frauds refers to the requirement that certain kinds of contracts be:
memorialized in writing,
signed by the party to be charged,
with sufficient content to evidence the contract (identity of the parties, subject matter, essential terms and conditions, idententity of the consideration, signature of the party against whom enforcent is sought)

15

3a. Statute of Frauds

The Following need to be in writting:
1. Contract Related Business cannot be completed within a year
2. Contracts for the purhcase of real estate
3. Contracts involving more than $500 worth of goods
4.A contract where another party is cosigning and garantying the debt of another

16

Parole Evidence Rule

The parol evidence rule is a contract law doctrine that prevents parties to a written contract from presenting “extrinsic” evidence of terms in a contract that contradict, modify, or vary the terms of a written agreement, when that written agreement is considered complete and finalized

17

Exceptions to the parole evindence rule

1. To resolve ambiguities in the contract or to otherwise assist in interpreting a term of the contract
2. To show that a term in the contract is a mistake
3. To show that fraud, duress, unconscionable behavior, or tortious interference with contract occurred
4. To show that consideration was never paid
5. To identify the parties or subject matter of the contract
6. To modify the contract after its has been signed by all parties, if the contract explicitly allows for that
7. To show a condition that had to occur before contract performance was due did not occur
8. To show that an implied term of custom or trade usage or past dealings is part of a contract even if not in a written agreement
9. If the evidence is incorporated into the contract by reference to the evidence in the contract itself
10. UCC 2-202 with respect to the sale of goods, allows for evidences that explains or supplements but not contradicts

18

A contract can de discharged under law if :

1. The party under contract is bankrupt
2. Dies or becomes incapacitated
3. Or it is physically impossible to complete the contract

19

7. Acceptance

1. Can be written or oral
2. Needs to be accepted by the intended person
3. The accepting party needs to be fully aware that there was an offer and it has all the facts to make an informed decision
4. They must intend to accept and cannot be an accident
5. The acceptance should come in the form required by the offeror
6. An acceptance with added stipulations is a counteroffer and not an acceptance
7. Acceptance is usually effective when sent not when received
8. Exeption, option contract - acceptance must be recieved in order to be effective

20

Offer Revocation execeptions

Usually the offeror can revoke the offer at any time prior to an effective acceptance unless
1. Option Contract Exeption - If there is consideration for the offeror's promis to keep the offer open then the promisse becomes an option contract and cannot be revoked for the period of the option
2. Firm Offer exception- Offer made under the ucc that are irrevocable even though there is not consideration
3. Unilateral contract partial performance exeption - if the contract can be accepted only by performance so that there is no acceptence until the act is complete , the majority rule is that partial performance (seen as consideration) make the offer not revocable. Minority rule - Revocation allowed but the offeree can recover his or her performance in quasi-contract
3. Bilateral Contract partial performance exeption. If the offer can be accepted by a promisse then partial performance implies a promisser to complete performance and therefore a bilateral contract

21

2. Consideration

1. An act or forbearance to act or promise to do either given from one party to another in exchange for act, non act or promise. Quid pro quo
2. all contracts need to have consideration to be enforcable
3. Consideration needs to bind both parties and create a mutual obligation
4. Usually contracts and obligations do not need to be absolutely fair for both side but
5. If they are too lumpsided they can be evidence for fraud, duress or unconsionability
6. contract to exhange unequal amount of money or fungible goods at the same time (its ok if different times)
7. Nominal consideration is shady unless consideration for an option contract

22

2b.Situations lacking consideration

1. Preexisting duty - no legal detriment if you promise to do what you were already bound to do. Unless the dutty is changed so that it would support an amended contract

2. Past consideration - if you clean your friends house and then 6 months later you borrow your friend money you cannot use the cleaning of the house as a payment for the money you borrowed now

3. Moral obligation - insufficient consideration unless a former promise is renewed or slightly qualified - a new promise to pay a debt barred by the statute of limitations

23

2c. Exeptions to consideration

1. something something about comercial paper (consideration is presumed)
2. Contrats under seal - most states have have abolished this rule
3. Other Ucc exeptions
4. Promissory estoppel

24

Promissory estoppel

Active if the following elements are present
1. the promissor makes an express promise
2. the promissor expects or should expect to induce an act or forbearance to act by the promisee
3. the promisee relied on this promise and the reliance was justifiable
4. an injustice (not merely a legal detriment) will result to the promisee unless the promise is enforced

25

Special Contracts - exeptions to consideration

-Special contracts when one party has substantial discretion while the other party is bound:
1. Requirement contracts - For a specified period of time, a buyer is contractually obligated to purchase all of a particular set of goods that it requires from the seller. An essential element in these agreements is exclusivity - All the needs of the buyer need to be satisfied by one seller
2. An output contract is the opposite of a requirements contract. In an output agreement, the buyer agrees to buy the full amount that a seller can produce in a certain season or time period
3. According to Article 2 of the UCC output, requirements and exclusive dealing contracts have to be based on good faith and best effort

26

4. Capacity - Infant

1. Common law is 21 but state law supersedes and most states have the age as 18
2. Marriage might remove the disability of infancy
3. Court action might make an infant an adult
4. A contract made with an infant is voidable by the infant
5 the contract is not voidable if it has provided food shelter or clothing to the minor
5. the other party cannot void the contract

27

4b. Capacity - Incompetent

- Contracts with people adjudicated insane by the court are void, but the person is still liable for necessaries furnished to them
- contracts made by a person who is de facto insane but not declared insane by the court are voidable

28

4c. Capacity - Intoxication

- treated like incompetent and the contracts is generally voidable

29

6. Legal Subject Matter

If the subject matter of a contract presents a type of illegality:
-contrary to public policy
-violation of law (contract to perform a crime or a tort or usurious contracts)
- unconscionable contracts when a party takes unfair advantage of another party - unenforcable - void

30

Unenforcable vs void vs voidable

- An unenforceable contract or transaction is one that is valid but one the court will not enforce. Unenforceable is usually used in contradiction to void (or void ab initio) and voidable. If the parties perform the agreement, it will be valid, but the court will not compel them if they do not.
- Void - one of the parties may seek damages in tort or quasi contract
- Voidable than the party that has the option to void can either affirm the contract or sue for rescission

31

Exeptions to the Statute of Frauds

1 failure to comply with the statue make the contract unenforacle not void or voidable
2. if one party performs but the other party doesnt then the first party cannot sue on the contract but can recover in quasi contract
3. an executed contract cannot be rescinded
4. if party A sues party B over a contract that fails to comply but party B fails to please the statue than B waives the statue and the contract is enforcable
5 bilateral contract - one promise comes within statue and the the other one doesnt and the one that comes within statue is executed then the promise that does not come within statue can be enforced
6 Real estate contracts need to be in writting but if the buyer have possesion of the land and made partial payments or improvements then oral contract is enough
7 An employement contract for life need not be written because it could technically be performed in less then a year if the employee dies

32

Contracts lacking Assent because of:

1. Mistakes
2. Innocent misrepresentations
3. Fraud
4. Duress
5. Undue Influence - contract voidable by victim
6. Unconscionability

33

Mistakes

1. Unilateral - if the mistake was made in good faith then its enforcable otherwise it is voidable
2. Mutual
- if so bad that there is no agreement then void
- if mistake is related to a material provision then voidable unless it can be reformed or an innocent 3rd party would suffer a loss
-if there is an agreement but there was a simple mistake when translating oral to writting then the court will just reform the agreement
3. Mistake in the inducement - if either or both parties were mistaken concerning their reasons for entering the contract then that is not a ground for relief

34

Innocent misrepresentation without intent to defraud

If it is material then it can give rise to the following
- defense to an action to enforce the contract
- Grounds for rescission which means the restauration of each party to its original position as can equitably be accomplished

35

Fraud - Elements

1. False representation (or non-disclosure)
2. of Material facts
3. with Intention to deceive (scienter)
4.Justifiable Reliance - if there are means to verify the veracity of the stament prior to accepting the contract then justifiable reliance requires such verification
5. Injury resulting from the deception

36

Types of Fraud

Fraud by inducement is when a person misrepresents important facts leading another person to sign a contract whereas fraud in the execution is when a person misrepresents the nature, purpose or subject-matter of the contract leading another to think it's something else

37

Duress

1. is the threat of harm to a party to force him to enter a contract
2. the threat needs to be physical violence or criminal prosecution
3. Threat of civil suit or economic loss is generally not considered duress
4. sometimes unlawful detention or threat of destruction of someone's property might constitute duress
5. extreme duress makes the contract void
6. simple duress makes the contract voidable

38

Unconscionability

1. taking advantage of another party's ignorance, illiteracy or greatly inferior bargaining position
- under UCC 2-302 a court can refuse to enforce unconscionable contracts or limit their application to prevent unfair results

39

How to discharge a contract

1 Performance

2 Agreement of both parties to end of modify the liability

3, Operation of Law

4. Breach

40

Performance - Types

1. Complete performance
2. Substatial complition that is not a failure of consideration - any loss must be paid to the non breaching party or deducted from what they needed to pay
3. Material Breach - Failure of consideration excuses the other oarty from his or her duties to perform

41

Performance - Conditions to performance

1. Condition Precedent - an uncartain event that needs to occur before there is a duty to perform - if it fails to occurs, the party whose performance was conditional i doesnt have to perform

2. Condition Subsequent -uncertain event that if it occurs it will relieve a party fro its duty to perform

3. Condition Concurrent - two promises that are to be performed at or at about the same time, one in exchange for another

*if a condition is not met no liability accrues unless the condition was also a promise

42

Performance - Time

1. Unspecified - must be made within a reasonable amount of time - reasonable depends on the circumstances

2. Specified - if time is specified then failure to perform withon this time is breach of contract and this can cause an action for damages

3. Of the Essence - failure to perform is a failure of a condition and the other party is relieved of their duty to perform. Time is off the essences when specified by the contract or if a failure to perform in time would defy the purpose of the contract

43

Performance by mean of payment - full payment

It can be made by money or a negotiable instrumentI
If payment is made through a negotiable instrument then acceptance is conditional and the contract is not discharged until the instrument is paid

44

Performance by mean of payment - partial payment

1. The debtor may specifiy application of payment (principal or interest, one or several debts...)

2. If the debtor does not specifiy, the creditor may chose. but some courts may require interest to be paid before principal

3. If noone of the parties chooses then the law pressumes that :
- interest before principal
-old debt before new debt
- unsecured before secured debt

45

Tender

An atempt or offer to perform, which is proper in time, place and manner, is a tender
- if Proper performance is tendered but refused the promissor is discharged and it has the right to sue for breach of contract
- If the tender involves money, a refusel does not discharge the debt but it stop the accrual of interest

46

Agreement to End the liability

1. (?) Release - To be effective the release requires seal, consideration, detrimental reliance, deed of gift, or gift of evidence of indebtedness - Mutual release discharges both parties from further performance - each release is consideration for the other

2. Waiver - promise to excuse the breach of promise or failure of condition- often without consideration

3. Cancellation - Physical destruction of a written contract with intent to destroy its legal effect

4. Mutual rescission - undoing of the contract on both sides and placinf the parties in their original position

47

Agreement to Modify the liability- Common Law

Common law makes unenforcable any clause in a written contract that prohibits a future oral modification or a rescission of the contract. Under common law, the modificationof a contract requires consideration

But

UCC 2-209 validates written clauses to this regard, with except to agreeement between merchants where such a clause on a form supplied by a merchant needs to be signed separatly by the other party - There is a contract with the additional terms unless those terms are material, are objected to, or if the offer was specifically limited to its terms.

48

Agreement to Modify the liability

1. Merger - contract duty is superseded bu a higher duty, promissory note vs debt on open account, judicial judgement vs contractual obligation
2. Accord and Satisfaction (executory accord)
3. Substituted contract - the parties agree on a new contract that superseed the old contract
4. Novation - the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party
5. UCC 2-209 provides that a good faith modification is binding even without consideration

49

Accord and Satisfaction (executory accord)

- Agreement to accept a performance in the furture in substitution for a performance required under an existing contract
- performance of this substituted duty discharges the original duty
-Example of disputed and unliquidated debt
Send a check for an amount less than owed and writte "payment in full" on it. If the check is cashed then that is considered satisfaction and acceptance

50

Implied in fact vs implied in law

Implied in fact is when the terms are not explicitly agreed upon (restaurant, taxi, services provided)
Implied in law is when there is no contract but the law interveenes to avoid that one party suffers financially or physically

51

Novation

One party accepts the performance of a third party in place of the party obligated under the original contract

52

Rescission

The parties are restored to their original position

53

Discharge of Contract by operation of Law

1. Death or incapacity of the party obligated to perform a personal service contract
2. Impossibility or Destruction of subject matter
3.Illegality of the services to be performed
4.Discharge in bankruptcy

54

Discharge of Contract by Breach

1. Violation of contract terms
2. Anticipatory breach of contract

55

Anticipatory breach of contract

One party lets the other party to the contract know that performance will not occur
- Can cancel the contract
- Could sue for compensatory damages
- Doctrine of anticipatory repudiation allows a party to either sue at once or wait until after performance is due when the other party indicates performance will not occurH372

56

Remedies for Breach

1. Rescind (cancel) the contract and sue for restitution
2. Affirm the contract and sue for damages
3. To simplify enforcement, the parties to a contract sometimes place a liquidated damages clause in the contract, specifying an amount that will be awarded in the event of breach

57

Rescind (cancel) the contract and sue for restitution

Cannot rescind if substantially performed
Restitution - Prevents the breaching party from being unjustly enriched

58

Affirm the contract and sue for damages

1. Generally, actual and forseeable damages damages. Not Unforseen Damages
2. Punitive damages only for fraud
3. Specific performance only for unique property and never for personal service contracts

=> The victim of breach must take reasonable action to minimize the damages, and cannot recover damages they could have reasonably avoided

59

Types of Damages

1. Compensatory damages - Compensates for direct losses and lost profits
2. Consequential damages - Indirect costs and anticipated losses. Awarded if these are foreseeable to breaching party
3. Nominal damages No real probable loss
4. Punitive damages To punish (usually for fraud), not for a breach of contract
5. Specific performance - Available for unique property
Not for personal services

60

Statute of Limitations

- An action for breach of contract begins at the date of breach
- Generally 4 to 6 years