Business Law - Contracts Flashcards
List the enforceability classifications of contracts
Valid, Void, Voidable, Unenforceable.
Define “contract”
An agreement supported by consideration between two or more persons with competent capacity for a legal purpose
Define “unenforceable contract.”
A valid contract that cannot be enforced due to a legal defense
List the classifications of contracts in terms of degree of performance completion.
Executed and Executory.
What constitutes an executory contract?
A contract not fully performed by both sides
What is an executed contract?
A contract that is fully performed by both sides
What is a bilateral contract?
A promise in exchange for a promise
Define “implied-in-fact contract.”
A contract formed at least in part based on the conduct of the parties
Define “voidable contract.”
A valid contract for which a party has the option to avoid liability
Define “void contract.”
A contract that violates the law or lacks an element that results in courts lacking authority to have parties honor it.
Define “quasi-contract.”
A contract imposed by law, despite the fact no actual intent to make a contract exists, to prevent unjust enrichment
Define “express contract.”
A contract formed wholly by oral and/or written words.
List the sources of contract law and the items to which they apply.
Common law - real estate and services;
Uniform Commercial Code - Goods
What is a unilateral contract?
A promise in exchange for an act
List the elements of a contract
Offer, Acceptance, Consideration, Capacity of the parties, Legality, Writing (when required).
Describe the requirements of an offer.
Objective intent to contract;
Common law: subject matter, price, payment terms, time for performance, etc.;
Uniform Commercial Code (UCC): subject matter and quantity if more than one;
UCC will supply the remaining terms if not in the offer.
When is a revocation by the offeror effective?
When offeree knows of or receives revocation.
When does the acceptance of an unilateral offer occur?
Takes place upon completion of the act required by the offeror
Describe the mirror-image rule regarding acceptance of an offer.
Acceptance must be absolute, unequivocal, and unconditional. In common law, if the acceptance is not a mirror image of the offer’s terms, it is a rejection and counter offer.
List the ways in which an offer can be terminated by operation of law.
- Lapse of time;
- Death or insanity of either party (unless offer is irrevocable);
- Destruction of the specific subject matter of the contract;
- Intervening illegality
What happens under UCC law if there are additional terms in acceptance and the parties are merchants?
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.
When are preliminary negotiations considered offers?
Preliminary negotiations are generally not offers unless such negotiations includes price lists, solicitation of bids, and auctions with reserve.
List the three types of irrevocable offers.
- Options;
- Sales of goods firm offers;
- Offers irrevocable by estoppel
List the requirements of an offer
- Serious intent;
- Definite Terms;
- Communication of Offer
What happens under UCC if there are additional terms in acceptance and the parties are nonmerchants?
There is a contract, but without the additional terms.
When is an acceptance of an offer effective?
If sent by authorized medium, effective when delivered to the medium;
If sent by unauthorized medium, effective when received by offeror, provided that the offer is still open.
Can silence be considered a form of acceptance to an offer?
Generally not acceptance unless the offeree’s actions indicate an attempt to accept or the offeree has the duty to reject.
Describe the general rule of revocation.
An offer can be revoked at any time before acceptance unless offer is irrevocable.
Describe an expressly authorized or stipulated means of communication.
A means of communicating acceptance that is expressly stipulated in the offer.
What happens under Common Law if there are additional terms in an acceptance?
The acceptance is a counteroffer and a rejection.
When are advertisements considered offers?
Advertisements are generally not offers unless they only invite acceptance.
Define “option contract”.
An option contract is a distinct contract in which the offeree gives consideration to keep the offer open
What conditions must exist for the acceptance of a bilateral offer to take place?
Acceptance must be unequivocal and communicated to the offeror.
List the ways an offer can be terminated by the act of the parties to the offer
- Revocation;
- Rejection;
- Counteroffer.
When is the revocation of a public offer effective?
Effective if made in the same medium as the offer.
List the requirements of a firm offer for the sales of goods.
- Offeror is a merchant;
- Offeror using a signed writing;
- Assures offer will remain open for a stated period of time (without consideration not to exceed three months, regardless).
How is serious intent (objective intent) measured?
Measured by a reasonable person’s interpretation of the circumstances.
How does an individual incur legal detriment?
An individual can incur legal detriment by (1) doing or promising to do something that he or she had no prior legal duty to do or (2) refraining from or promising to refrain from doing something that he or she had no prior legal duty to refrain from doing (that is, by forbearance).
Explain the difference between a liquidated and an unliquidated debt.
A liquidated debt is one in which the amount due is agreed upon. An unliquidated debt is one in which the parties acknowledge a debt but disagree as to the amount that is due.
List the exceptions to a preexisting duty.
Rescission and new contract;
Unforeseen hardship;
Sale of goods - modification of contract.
List the types of contracts with uncertainty of total performance
Requirements Contracts;
Output Contracts.
Define “accord and satisfaction.”
Agreement between two parties to settle an unliquidated debt (obligation is acknowledged, but the amount is unclear)(accord); satisfaction is payment of that amount; payment discharges all obligations; is not effective for discharging a liquidated debt, such as an installment loan.
What are the elements of a consideration?
Consideration has two elements: (1) there must be a bargained-for exchange between the parties (if a party intends to make a gift, he or she is not bargaining) and (2) what is bargained for must have legal value
What promises are enforceable without consideration?
Good-faith modification under the Uniform Commercial Code (UCC);
Charitable subscriptions (promissory estoppels on pledge to make a gift);
Promises barred by the statute of limitations
What are the requirements for a consideration in a contract?
Each party to the contract has a benefit and detriment. The promises (detriment) are induced by the benefits and the benefits are induced by the promises (detriment). Bargained-for exchange. Consideration must actually change hands
Describe the requirement for an output contract to be with consideration
The contract is based on established production or ability to produce by the seller and the seller must sell its production to the buyer
Define “preexisting duty.”
A promise to do what one is already legally obligated to do is without consideration
Describe the exception to the written requirement for contracts involving an interest in realty
If a performance is such that the parties cannot be returned to the status quo, the exception is applicable
Define the “fully integrated contract.”
Contract that is complete, final, and unambiguous.
List the minimum requirements for a valid writing or record of a contract.
Identity of the parties;
Subject matter (quantity if more than one);
Signature (authentication) by party against whom you want enforcement).
List the situations in which the partial performance exception for real property agreements apply.
Buyer has made a payment;
Buyer has taken possession;
Buyer has made improvements.
What is required for modification of a contract under common law?
Additional consideration.
Define the “merchant’s confirmation memorandum.”
A Uniform Commercial Code (UCC) provision that allows one merchant to bind another based on an oral agreement with one signature. For example, if two merchants have underlying oral agreement and one merchant sends the other a fax, letter, or e-mail that confirms the terms of the oral agreements, the contract is enforceable even though only sign/authenticated by one party. The contract is enforceable against both parties.
Describe the general rule about contracts that involve an interest in real property
Any contract involving an interest in realty to be enforceable must be in writing or have written evidence thereof, or an applicable exception
Describe the UCC performance exception to the requirement of a record.
If the buyer takes possession or makes a payment accepted by the seller, Statute of Frauds is removed at least for the part possessed or paid for. If the seller accepts payment for the goods, at least for the amount reflected in that payment
Describe the statute of frauds
A contract statute that requires certain kinds of contracts (i.e., contracts for the sale of goods for more than $500) be memorialized in a signed writing with sufficient content to evidence the contract
List the contracts that must be in writing or on record to be enforceable
Contracts involving real property sales, transfers, listing, and leases longer than one year;
Contracts to pay the debt of another;
Contracts that cannot be performed within one year;
Contracts for the sale of goods for $500 or more.
List the exceptions to the parol evidence rule.
Defenses to formation (misrepresentation, mistake, duress);
Modification;
Ambiguities (because contract is not fully integrated);
Incomplete contract (because contract is not fully integrated).
Describe a situation in which the special-ordered goods exception would apply
Condition in which the seller has substantially begun performance or has made an irrevocable commitment to do so before the buyer cancels the contract.
To what types of contracts to which the parol evidence rule applies.
Final, complete, and unambiguous contracts (fully integrated contracts).
Against whom are ambiguities construed?
Against the party who drafted the contract.
Define the “parol evidence rule.”
A fully-integrated contract clearly written cannot be contradicted, varied, or altered by evidence of the parties’ prior negotiations, agreements, or contemporaneous oral agreements.
What is required under the UCC for modification of a contract?
The parties agree to the modification (although not required to do so; it is their choice), but additional consideration is not required.
Describe the one-year rule under the statute of frauds
Any contract objectively impossible to perform within one year from the date of contract formation (date of acceptance) without breaching the terms, must be in writing or have written evidence of it to be enforceable.
Define “undue influence.”
Occurrence in which one party induces another party to enter into a contract by overcoming his or her free will through an abuse of a position of confidence
What is the effect of an illegal covenant in a contract?
The court can declare the covenant void;
The court can interpret the covenant in order to have it fall within the law
What types of contracts are enforced against minors?
Contracts for necessaries or necessities;
Contracts that they ratify after reaching the age of majority.
List the elements that constitute a fraud
Intentional Deceit (or negligent misrepresentation);
Deceit of a Material Fact;
Reliance of the party deceived
Describe a formation mistake.
When mistake is a clerical/computation error so large that other party should have known
What is the effect of illegal subject matter on a contract?
It makes the contract void
Under what circumstances can a unilateral mistake become a defense?
When other party knew or should have known of a mistake
Define duress
A forcing of a party to enter into a contract under the fear or threat of violence to that party or member of his or her family, or use of economic pressure to overcome the party’s free will
Describe the differences between fraud and misrepresentation
Fraud always have malicious intent, Misinterpretation may not have malicious intent to deceive if it happens negligently through a misstatement and/or omission of a material fact(s);
Fraud is a civil wrong which entitles a party to claim damages in addition to the right to rescind the contract. Parties to a contract claiming misrepresentation only have the right to rescind the contract and there can be no suit for damages
List the two types of contractual mistakes that can occur
Mutual (bilateral) mistake (defense); Unilateral mistake (not always a defense)
List the elements for misrepresentation or fraud
Misrepresentation of statement of fact;
Intent to deceive;
Reliance on the misrepresentation
When can a covenant not to compete be enforced?
When it is:
Part of a contract;
Necessary to protect one party, such as the buyer of a business;
Reasonable in geographic scope and time.
List the types of assent defenses that can be used to invalidate the formation of a contract
Mistake; Misrepresentation; Fraud; Duress; Undue influence.
List the remedies for lack of mutual assent.
Rescission;
Damages;
Modification
When do bilateral mistakes create a binding contract?
When mistake is due to
Value, or
Quality.
Define rescission.
The undoing of a contract so as to return the parties to their original position
Define “quasi-contract recovery.”
A remedy to give a reasonable value benefit to one party and avoid an unjust enrichment received by the other party.
What is meant by substantial performance?
Substitute performance done in good faith.
Substituted performance is for practical purposes just as good.
Party can be compensated for substitution
List the ways a contractual obligation can be discharged by operation of law.
Material Alteration;
Statute of Limitations;
Bankruptcy Decree;
Impossibility or Impracticability of performance
List the ways a contract can be considered impossible or impracticable.
Death or Insanity;
Destruction of Specific Subject Matter;
Illegality;
Commercial Impracticability
Define novation
By a valid contract, a new party is substituted for one of the original parties thereby terminating (discharging) the original contract
Define “liquidated damages.”
A specific sum is agreed to be paid in the formation of the contract in the event that in the future the contract is breached.
List the types of contractual discharge that can occur by agreement or party action
Release; Waiver; Mutual Recission; Novation; Accord and Satisfaction
List the ways a contract can be discharged.
By occurrence of failure of a condition;
By performance or breach of contract;
By agreement;
By operation of law
List the types of damages available for remedies.
Nominal;
Compensatory;
Punitive;
Liquidated.
Define “mutual rescission.”
An enforceable mutual agreement to discharge all contract obligations and restore the parties to their pre-contract positions
What requirements must be present for the enforceable liquidated damages provisions of a contract?
Damages difficult to estimate if a breach;
The amount stated is a reasonable sum estimate (not a penalty).
Define “compensatory damages.”
All costs or loss actually suffered and proved caused by the breach.
List the various types of conditions that can exist in contract sales
Precedent;
Subsequent;
Concurrent.
Define waiver
A relinquishment of a right due to a party’s breach
What happens when a condition precedent fails?
The duty to perform is discharged
Other than damages, what are the remedies for contract breaches?
Specific Performance;
Rescission
Describe the liability of the assignor
Unless released, assignor remains liable
Describe the rights of an incidental beneficiary
Has no right of recover against either party to the original contract (resident of city cannot recover if contractor does build planned city park)
List the various types of third-party beneficiaries.
Donee (Intended);
Creditor (Intended);
Incidental (Not Intended)
List the various types of third party contracts
Assignments;
Delegations;
Third party beneficiary contracts.
Describe the rights of a creditor beneficiary.
Can recover from original debtor who designated the creditor beneficiary or from party required to pay under contract with debtor (health insurance - hospital can recover from insured or insurer).
List contractual delegation exceptions.
Terms prohibit delegation;
Personal Skill/Special trust;
Material variation.
When is an assignment binding on the parties to the original contract?
When the original parties receive notice of the assignment.
Define “third party beneficiary contracts.”
Contract between two parties is set up with the purpose of providing benefits to a third party.
What elements must be in place for a creditor beneficiary to exist?
A debtor-creditor relationship must exist;
The debtor must make a contract with the third party that benefits the creditor.
List contractual assignment exceptions.
Terms Prohibit Assignment;
Statute Prohibits Assignment;
Personal Contracts;
Materially Increases Risks.
Describe the rights of a donee beneficiary
Can recover from party required to pay under the contract but not from the party who makes the arrangements for the payment (life insurance arrangement - beneficiary can recover from insurance company but not from the insured).
Define “assignment.”
The transfer of the benefits under a contract to a third party (contractor assigns payment to lumber company).
When two assignee’s names are on the same contract, which assignment is valid?
U.S. Rule - first in time of assignment;
English Rule - first to give notice of assignment.
Define “incidental beneficiary.”
A third party who receives an unintended benefit has no legal rights in a contract between two parties.
Define “delegation.”
The transfer of the detriment (duties) under a contract to a third party (Mr. Ice asks Ice Inc. to take over ice supply contract for Lobster, Inc.).
