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CPA REG > Biz Law - Contracts > Flashcards

Biz Law - Contracts Flashcards

1
Q

Contract

A

Legally enforceable agreement

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2
Q

Express contract

A

Parties manifest their agreement by spoken or written words

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3
Q

Implied contract

A

Implied in fact. Agreement is manifest, not by direct words, but from the conduct of the parties

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4
Q

Quasi contract

A

Implied in law. One party is unjustly enriched at expense of other party such that court will impose obligation on enriched party to pay other party.
No quasi-contract will be imposed if there is express or implied contract existing.

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5
Q

Elements of a contract

A

– Agreement
– Consideration
– Legal purpose
– Competent parties

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6
Q

Agreement

A

Manifestation of mutual assent for the parties.

Normally agreement is reached by offer and acceptance of offer.

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7
Q

Offer

A

A promise to do or refrain from doing something in future provided the other party complies with stated conditions.

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8
Q

A valid offer requires:

A

– Contractual intent: would reasonable person based on circumstances believe that an offer has been made?
– Definite term and reasonable certainty of terms
– Communicated to the offeree

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9
Q

Offer types: advertisements

A

Attempts to solicit an offer from the reader. Advertisements are not definite enough to be an offer even if it contains a stated price

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10
Q

Offer types: quote

A

Invitation to make an offer, not an offer

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11
Q

Offer types: bid

A

An offer

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12
Q

Offer types: preliminary negotiations

A

Negotiations before a final contract, not an offer

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13
Q

Revocation

A

Offer may be withdrawn/revoked by notifying the offeree anytime before acceptance.
– Revocation of offer by offeror is effective when received by offeree
– Rejection of the offer by offeree is effective when received by offeror

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14
Q

Offer assignment

A

An offer may not be assigned to anyone else

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15
Q

Option contract

A

A contract entered to keep offer open; offer cannot be withdrawing without breach of contract during the agreed-upon time.
A promise to keep an offer open must be exchanged with consideration.

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16
Q

Offer termination happens for:

A

– Expiration of time specified or a reasonable time if no time is mentioned
– Revocation received by offeree before acceptance
– Rejection by offeree (including counteroffer)
– Death of offeror or offeree
– Insanity of offeror or offeree
– Destruction of subject matter relating to offer if without fault of either party
– Intervening illegality: subsequent legislation makes offer or resulting contract illegal

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17
Q

Irrevocable offers

A

Exceptions to general rule:
– Option contract: offeror agrees to keep offer open in return for consideration
– Unilateral contract: when offeree has begun substantially to perform the contract
– Stated time of written offer signed by merchant even though there is no return consideration received in exchange

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18
Q

Fraud in the inducement

A

False representation of a material fact intentionally made, justifiably relied upon, and resulting in injury.
Contracts resulting from such fraud are voidable.

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19
Q

Fraud in the execution

A

Results from substitution of one document for another. The contract so executed is void.

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20
Q

Duress

A

A wrongful act that compels contractual agreement through fear.
Duress is subjective. The acts leading to duress may not be illegal.
– Threats of civil suit is not duress.
– Threats of criminal suit may be duress
– Mere argument, advice, persuasion, or annoyance is not duress
- Duress makes the contract voidable

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21
Q

Undue influence

A

Unlawful control exercised by dominant party, which is substitute for free will of dependent party. Generally applied to persons in close confidential relationship:

  • spouses
  • parent and child
  • guardian and ward
  • trustee and beneficiary
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22
Q

Mutual mistake

A

If both parties are mistaken as to material fact and neither are at fault or both at fault equally, there is no contract. It is void because there has been no agreement.

23
Q

Unilateral mistake

A

One party is mistaken. Contract is good so long as other party is not aware of mistake and has not entered this contract to take advantage of the mistaken party.

24
Q

Consideration

A

Bargained-for exchange as inducement to enter contract. Generally, courts do not look at adequacy of consideration.

25
Q

Liquidated debt

A

Both parties agreed to amount of debt.
Payment of lesser sum will not discharge balance. Additional consideration needed to support promise to forget about collecting remaining amount.
Example: paying before due date

26
Q

Unliquidated debt

A

Amount is disputed in good faith by parties. Payment of sum less than amount suggested by one of the parties discharges the obligation if the other party accepts lesser amount as full payment

27
Q

Promissory estoppel

A

Substitute for consideration.
Three elements must exist:
– Promise by the promisor that is reasonably expected to be relied upon by the promisee
– Promisee does detrimentally rely on the promise
– Injustice can be avoided only by enforcing the promise

28
Q

Illegal bargains

A

Agreement whose formation or performance is a tort, a crime, or is opposed to public policy.
Court will not enforce an illegal bargain, generally leaving the parties where the court finds them.

29
Q

Contractual capacity

A

Every party to a contract is presumed to have contractual capacity until shown otherwise.

30
Q

Minors

A

– Minors contract is voidable at their option, but not to other party.
- Contract is voidable, not void
– Age of majority is 18 generally
– Contracts by minor for necessities: minor still has to pay reasonable value of necessities. May not be the same as contract price.
– Disaffirmance: getting out of the contract
– Ratification: person is liable on contract made during minority if they ratify the contract. Minor can ratify contract only after reaching age of majority. Ratification may be expressed in words or implied by actions. Retention of goods for unreasonable time after reaching maturity age can be ratification
– Parent is not liable for minors contract unless is parent’s agent

31
Q

Insane persons

A

Mentally incompetent person may avoid liability on contracts.
Not necessary to be adjudicated insane to be mentally incompetent.
If the person is adjudicated insane, their agreements are void. If person can show that they are mentally incompetent without prior adjudication of insanity, their contracts are voidable.

32
Q

Statute of Frauds

A

Certain contracts must be in writing and signed.
– Sale of goods $500 or more
– Sale of securities
– Sale of intangible personal property of more than $5000
– Transfer of interest in real property
– Contracts that cannot be performed within one year
– Suretyship: promise to pay the debt of another

33
Q

Parol Evidence Rule

A

Extrinsic (oral or written) evidence is not admissible to add to nor alter the terms of a written contract.
Because all preliminary negotiations are merged into the writing.
Not violation for oral testimony to:
– Prove contract was illegal
– Show contract was from fraud, duress or undue influence
– Clear ambiguous or missing terms
– Show an oral condition precedent to the contract
– Show subsequent modification has been made to the contract

34
Q

Assignment of contract

A
  • Consent of non-assigning party is not needed
    – No consideration necessary
    – May be total or partial transfer
    – contracts and rights usually assignable, offers not
  • Nonassignable contracts: personal services (eg employment), contract that states it’s not, when assignment harms non-assigning party
35
Q

Third-party assignments

A
  • Donee beneficiary: promisee’s purpose to make gift to third-party donee. There is no legal duty owed to the beneficiary by the promisee.
    – Creditor beneficiary: promisee’s purpose to satisfy a legal duty m
    – Incidental beneficiary: person who benefits from contract but who makers did not intend to benefit.
    – Power to enforce: third-party can sue to enforce contract. Donee can sue promisor. Creditor can sue either promisor or promisee. Incidental cannot sue.
36
Q

Discharge of contract

A

End of contractual obligation

37
Q

Performance of contract

A
  • Complete performance: discharge of the contract, must be exactly as agreed
  • Substantial performance: slightly less than complete where there is technically a breach, but not material. Allows recovery of contract price less amount needed to complete contract.
  • partial performance: less than substantial, allows recovery only by quasi-contract for value of services rendered.
38
Q

Novation

A

Three party agreement where creditor agrees to release the debtor and take some third-party as a substitute. Novation discharges contract obligation of original debtor.

39
Q

Accord and satisfaction

A

Accord – agreement where different performance will replace original performance. Accord by itself does not discharge contract obligation.
Satisfaction – carrying out the accord.
Accord and satisfaction discharges the contractual obligation

40
Q

Impossibility of performance

A
  • Subjective impossibility: inconvenient or too expensive to carry out contract, does not discharge.
  • Objective possibility: discharges contract: nobody could carry out the contract, subject matter is destroyed, person who is to perform dies.
  • Doctrine of commercial frustration: excuses contractual performance if both parties contemplated the happening of some event that does not occur.
41
Q

Release

A

– Give up legal right to sue other party on contract
– Discharges the other party
– Release of one joint obligor releases all other joint obligors

42
Q

Covenant not to sue

A

– Promise not to sue the person, discharges that person

– Promise not to sue does not affect other joint obligors

43
Q

Discharge through operation of law

A

– Statute of limitations runs out so lawsuit cannot be filed for contract
– Person is discharged of debt through bankruptcy proceedings

44
Q

Breach of contract

A

– Failure to perform without a valid reason

– Breach by one party discharges duty of performance by the other party

45
Q

Anticipatory breach

A

Repudiation of contract by informing other party that contract will be breached when performance is due.
Other party may do either of:
– Wait and do nothing until performance time passes
– Sue immediately for beach before time; but damages may be difficult to establish

46
Q

Joint contracts

A

– Two or more persons jointly promise to perform obligation
– Suits must be brought against all joint on the source
– Judgments may be levied against one of the promisors
– Release of one joint obligor releases all of them
– If one dies, remaining still obligated to perform

47
Q

Several contracts

A

Severally = individually
– Two or more persons who separately agreed to perform same obligation may be sued individually
– If one dies, his estate is liable on obligation
– Release of one obligor has no effect on the other

48
Q

Remedies for breach of contract

A

Intended to put the injured party in the same position as if the contract had been performed insofar as possible

49
Q

Compensatory damages

A

For sale of goods:
– If buyer has goods and title: contract price
– If seller has goods and title: difference between contract price and FMV
– Seller will not deliver goods: difference between contract price and FMV

For sale of services:
– Seller will not perform: difference between FMV and contract price
– Buyer refuses to except services: profit that would’ve been made by seller

50
Q

Liquidated damages

A

Amount of damages agreed-upon in advance included in the contract. Use where actual compensatory damages will be difficult to determine.
Courts enforce liquidated damage provisions if they are reasonable and are not a penalty used to prevent breach.

51
Q

Mitigation of damages

A

After breach, injured party must minimize further loss. Injured party failing to do so will not be able to collect additional portion of damages that could have been prevented.

52
Q

Restitution

A

A.k.a. recession
Equitable remedy available only if damages would be inadequate to make nonbreaching party whole. Involves return to injured party of consideration given or its value.

53
Q

Specific performance

A

Equitable remedy available only if damages are inadequate remedy for breach.
E.g.: contract to buy land, purchases of unique personal property.
Promise must be clearly related to a specific identifiable item.
Not to use for: building contract, personal services.

CPA REG (17 decks)

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