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Flashcards in Contracts Deck (97):

What, in essence, is a contract?

A legally enforceable promise


What are a promisee and an obligor?

Promisee = has right to receive performance in a contract

Obligor = has duty to perform in a contract


What is the difference between a bilateral and unilateral contract?

Bilateral = two parties promise to fulfill duties towards one another (e.g. A performs service for which B pays)

Unilateral = one party promises to fulfill duty in exchange for another party's act or forbearance, which is not itself promised (e.g. a promise of reward for a missing pet)


What is the difference between an executed and executory contract?

Executed = already performed

Executory = not yet performed

A contract can be executed regarding one party's performance and executory regarding the other


What is a quasi-contract?

A legal duty imposed in cases where there is not formally a contract but the law still ought to imply one as a matter of equity and justice


What is the difference between void and voidable contracts?

Void = lack an essential element and thus do not impose any legal duties

Voidable = remain binding if not rescinded (e.g. contracts of infants, some contracts acquired via fraud)


What are joint obligees/obligors?

Multiple people who are owed performance/who owe performance as a single entity


What are several obligees/obligors?

Multiple people who are owed performance/who owe performance as separate individuals


What is assignment?

Transferring a contract right (i.e. to the obligor's performance) to someone else


When is assignment forbidden?

If both the obligor does not consent and either:
(a) the right is personal to the promisee or involves a confidential relationship
(b) the obligor's duties, rights, or risks would be materially impaired


Can assignment of a contract be forbidden in the contract itself?

Yes, although the assignment-forbidding clause can be voided in some cases


How do the obligor's counterclaims against an assignee work?

The obligor can assert counterclaims against an assignee only for claims against the assignor that accrued before notice for the assignment was given


What happens if an assignor wrongly assigns the same contract right to different assignees?

Two different rules can apply:
(1) Whoever received first assignment has the right
(2) Whoever gave first notice to the obligor has the right


What is a gratuitous assignment?

An assignment made without any consideration from the assignee


When is an assignor forbidden from revoking a gratuitous assignment?

(a) there is promissory estoppel (i.e. the assignee has already acted to rely on the promise)
(b) the assignor gave a tangible document for the assignment
(c) the assignee has already collected the consideration from the obligor


What is delegation?

Transferring a contract duty (i.e. to give consideration to the obligee) to someone else

Not all duties can be delegated


Can a delegator still be liable for a contractual duty after having delegated the duty?

Yes, he is liable to the obligee until the duty is performed


What are the seven elements of a contract?

Agreement (mutual assent)
Legal subject matter
Statute of Frauds


What is the mirror acceptance rule?

The acceptance of a contract must contain all the terms and conditions included in the offer


What is the general rule behind implied contracts?

The objective rule of contracts: If a party's conduct would cause a reasonable person to believe the party is assenting to the contract, then the party has implicitly assented to it


Are advertisements distributed to large numbers of people usually offers or invitations to make offers?

Usually invitations to make offers, but this is determined by various other factors and circumstances


Can contracts be validly made if they have missing terms?

Yes, so long as the parties intend to supply the terms later -- this is frequent for many contracts

The Uniform Commercial Code (UCC) requires that only quantities be specified


What occurs if an offeree attempts to accept an offer after the offer is terminated?

It is effectively a new offer


Is an offeror allowed to revoke an offer if he has said the offer would be open for a given period of time?

Yes, so long as it is truly revoked


If an offeror revokes an offer by communicating the revocation to the offeree, when is the revocation effective?

When the offeree receives it (not when the message is sent)


What is a contract for the offeror to keep the offer open?

An option contract


What are firm offers?

Offers that are irrevocable despite having no consideration given to the offeror in exchange for keeping the offer open


When does a unilateral contract offer become irrevocable?

If partial performance is given
-A minority rule permits revocation but only if the offeror compensates the offeree (in a quasi-contract)

"Partial performance" for bilateral contracts occurs if the offeree promises to complete performance (i.e. accepts the contract)


When does an offer become revoked if a particular time period for the offer is not specified?

After a reasonable amount of time, given the circumstances


If an offeree communicates a rejection of an offer, when does that rejection become effective?

When the offeror receives it


What would count as a counteroffer?

If the offeree tries to substitute new terms in the contract

If the offeree merely inquires about adding terms, it is not a counteroffer


What else can terminate an offer?

Insanity (of offeror or offeree)

Bankruptcy or insolvency (of offeror or offeree)


How does contract acceptance relate to the objective rule of contracts?

It is an exception to it, since if an event is not clearly an act of acceptance, then the *subjective* intent determines whether acceptance actually occurred


When does a communicated acceptance become effective?

When the offeree sends it to the offeror (or his agent) -- NOT when it is received


What is the mailbox rule?

Rule that acceptance is effective when sent, even if it is delayed or lost in transit


What is the exception to the mailbox rule?

If an offeror keeps an offer open because of a contract (i.e. an option contract), then he must *receive* acceptance for it to be effective


Can an offer be accepted if the offeror mistook the offeree for someone else?

Yes, so long as the offeree reasonably believes the offer was intentionally given to him


Can silence count as acceptance?

Yes, given the circumstances, though not ordinarily


How does the concept of "legal detriment" relate to consideration?

A party offers consideration only if it suffers legal detriment -- i.e. if it voluntarily surrenders a legal right it would otherwise have, such as the right not to give the other party money

An act does not count as consideration if one is already legally bound to perform it


When do conditional promises count as consideration?

If the condition upon which the promise will be fulfilled is outside the promisor's control


If the promisor or promisee can choose among alternative acts, does the promise include consideration?

If the promisor can choose, then it counts as consideration only if all options are legal detriments

If the promisee can choose, then it counts as consideration only if at least one option is a legal detriment


Can a contract be voided due to unfair considerations?

Not normally, but extremely lopsided contracts could evidence fraud, duress, etc.


What are some examples where the consideration is inadequate?

An exchange of unequal amounts of money (or other fungible goods) at the same time

Nominal consideration, e.g. only one dollar -- though this works fine for an option contract


Can past actions count as consideration for another party's promise?

No, because such actions would not have been done in exchange for the promise


How do negotiations for commercial paper relate to consideration?

Consideration is presumed if commercial paper is negotiated


When do contracts not require consideration to be enforceable?

When they are under seal

This rule is becoming very rare, however


What is promissory estoppel?

When a promisee acts substantially while justifiably relying on the promise (and the promisor should have expected him to act that way), so that it would be an injustice -- more than a legal detriment -- if the promise is not enforced

Lack of consideration cannot be asserted in such a situation


When are contracts with infants/minors not voidable?

When the other party provides the infant with necessities (e.g. food, shelter, clothing)

An infant contract is never voidable for the other party


When are persons no longer classified as infants/minors?

When they become adults -- 18 in most states, though it can occur by court action, marriage, or other means


What are two kinds of incompetent persons?

De jure insane (already judicially declared insane) = all contracts made with them are void, except contracts for necessities

De facto insane (not judicially declared even though truly insane) = contracts with them are voidable

Drunk people also treated as (de facto) incompetents


What are some examples of illegal contracts?

-contracts which interfere with the dispensing of justice
-contracts which unreasonably monopolize trade
-contracts which exonerate a party from negligence or wrongdoing


What does it mean for contracts to fall within the Statute of Frauds?

Such contracts must be in writing and signed to be valid (even though they can be oral if promissory estoppel applies)


Strictly speaking, does a contract within the Statute of Frauds need to be written?

Not necessarily -- there needs to be written evidence of the elements of the contract (which can also exist in separate documents), but the contract itself does not need to be written as an entire contract


What qualifies as a signature for contracts within the Statute of Frauds?

Any mark (even an "x"), so long as the signing party verifies it as his own


What occurs if only one party signs a contract within the Statute of Frauds?

The contract is still enforceable, but only against the signing party


What happens if a contract within the Statute of Frauds fails to comply with the Statute (i.e. is not in written form)?

It is unenforceable -- which is different from being void or voidable

Unenforceable contracts cannot be a basis for lawsuits, though they can generate quasi-contracts


What contracts are covered by the Statute of Frauds?

(1) Sales of goods for $500 or more
(2) Real estate contracts
(3) Contracts impossible to perform within one year
(4) Contracts to answer for another's debt (surety)
(5) Contracts for executors to answer for the debts of decedents' estates
(6) Promises in consideration of marriage (e.g. prenuptials)


Are all lease contracts under the Statute of Frauds?

No, only contracts for leases longer than one year are


Under what circumstance would a real estate contract not be under the Statute of Frauds?

If the buyer has possession of the land and has already made partial payments or improvements


Under what circumstance would a promise to pay for another's debt NOT be under the Statute of Frauds?

If the promise is not collateral (i.e. for another's benefit), but primary (i.e. for the surety's benefit)


What contracts are similar to, but not the same as, surety contracts?

Any promises to pay a third party for another, without promising to *answer for debts* towards the third party

Such situations are not covered by the Statute of Frauds


What is the general rule for ambiguous terms in a contract?

They are interpreted against the party who wrote the terms


What is the parol evidence rule?

For a contract intended by the parties to represent their whole agreement (i.e. an "integrated" contract), any prior or contemporaneous agreements which alter or contradict it are not relevant

Subsequent agreements are still relevant


What is a unilateral mistake?

One party makes a mistake in forming the contract

If the other party did not know and acted in good faith, usually still enforceable


What can occur if there is a bilateral mistake in a contract?

-If there is no real agreement, the contract is void
-If one party's duties materially increase, the contract is voidable to that party (unless an innocent third party would be harmed), or the contract can be changed


What is a mistake in inducement?

A mistake involving not the actual terms of the agreement, but the reasons to enter into it

Not good grounds to void or alter the contract


What term denotes the intent to deceive (as in fraud)?



What are two different types of fraud?

(1) Fraud in inducement -- in causing the party to agree to the terms
(2) Fraud in execution -- in causing the party to sign something that brings the contract into existence

(1) makes the contract voidable
(2) makes the contract void


If a fraudulent contract becomes void, can the defrauded party still seek out damages?

Yes, but not on the basis of the contract itself -- only in tort


What is duress?

A threat to a person (or a family member of his) which forces him to enter into a contract

Causes the contract to become voidable


What are examples of duress?

Threat of criminal prosecution (whether guilty or not), threat to destroy or detain another's property

Threat of civil suit does NOT count, nor does threat of economic loss


What is undue influence?

When someone in a position of trust manipulates someone of a weak mind to enter into a contract

Contract is voidable


For third-party beneficiary contracts, what is a donee beneficiary?

If a promisee contracts with a promisor to give a third party a gift, that party is the donee beneficiary

Donee can sue promisor for breach, but not promisee (since promisee does not owe anything)


When there is a donee beneficiary, what can the promisee do if the promisor does not perform?

Either (a) sue to restore original pre-contract conditions or (b) sue for specific performance

Promisee cannot sue for damages, because the promisor's nonperformance cannot cause harm in this situation


For third-party beneficiary contracts, what is an incidental beneficiary?

Someone who benefits from other parties' contract without their intending him to benefit

Has no contractual rights or grounds for lawsuit if the parties do not perform


For life insurance third-party contracts, when do the beneficiary's rights come about (i.e. when do rights vest in the beneficiary)?

Immediately, unless the parties reserve the right to change the beneficiary


For other third-party contracts, when do the rights vest in the beneficiary?

When he learns of the contract and (a) assents to it, (b) acts to justifiably rely on it, or (c) sues on its basis


Why is the timing for beneficiaries' rights-vesting significant?

Before the rights vest, the other parties can change or discharge the contract without the beneficiary's consent


What is the difference between complete performance and substantial performance?

Complete = consideration fully given

Substantial = still serves as consideration, with compensation for any defects to the nonbreaching party


What is the difference between a condition precedent and a condition subsequent?

Both are uncertain future events

Condition precedent = must occur to create duty to perform

Condition subsequent = if occurs, erases duty to perform


What is a condition concurrent?

When two promises are performed simultaneously (or nearly so)


What does it mean if time is "of the essence" in a contract?

A failure to perform on time would relieve the other party of its duty

This is more than merely saying that failure to perform on time would be a breach of contract


What happens if payment for a contract is done with a negotiable instrument?

The contract is not yet discharged -- not until the instrument is itself paid


How are partial payments of debts applied towards principal and interest?

The debtor has first say in specifying, but if neither he nor the creditor do so, then these rules obtain:
(a) interest before principal
(b) older debts before newer
(c) unsecured debts before secured


What are different ways to end a contract besides performance?

(a) Release = discharging of a right -- ordinarily requires consideration (which can be the other party's release)
(b) Waiver = promise to excuse a breach of promise -- does not necessarily require consideration
(c) Cancellation = destroying physical document of contract
(d) Mutual rescission = restoration of both parties to pre-contract position


How does common law bear on clauses in written contracts forbidding future oral modification or rescission?

Common law treats such clauses as unenforceable

However, contract modification requires consideration


What is accord and satisfaction?

Resolving a disputed claim by agreeing to substituted terms (less than full payment) and performing those instead

"Accord" is the new agreement, and "satisfaction" is the discharging of the new terms


What is novation?

Substituting a new contract with an old one, discharging the duties of the old one


How does accord and satisfaction differ from novation?

In novation, the old contract is discharged ipso facto by the promises of the new contract

In accord and satisfaction, it is not; the old contract's duties are discharged when satisfaction is rendered for the substitute contract's duties


Does failure to perform still count as a contractual breach if the party was not at fault?



What is renunciation?

Either a promisor's assertion not to perform, or an act he does to make performance impossible

Counts as a breach of contract


What is an anticipatory breach?

In a bilateral contract, a renunciation before performance is due

If renunciation is later withdrawn (before promisee sues), it does not count as a breach -- but if the promisee has materially changed because of the renunciation, then it can't be withdrawn


When does a breach discharge the other party's duty?

(a) If it is material, or (b) if performance is, in the contract, a condition for the other party's performance


What are two remedies in case of breach?

(a) Rescind the contract, with a lawsuit for restitution
(b) Maintain the contract, with a lawsuit for performance and/or damages


When might specific performance be a remedy for breach?

If the remedy for damages does not resolve the situation (e.g. in a contract for the sale of special property)

Specific performance is generally not granted if it would involve complex court supervision or overseeing a personal service or relationship (e.g. marriage)


What are compensatory, consequential, and special damages?

Compensatory = for losses or forgone profits from the breach

Consequential = for harms predictably following the breach

Special = for harms due to unusual circumstances (usually not enforced)


What are punitive, nominal, and liquidated damages?

Punitive = purely for punishment -- never allowed

Nominal = damages in name only -- usually allowed for when there is a breach without any proven loss

Liquidated = specific damages already mentioned in the contract in case of breach