Ch 8 Flashcards
Contract law enables private agreements to be…
Legally enforceable
Contract
Legally enforceable promise or exchange of promises
Confidentiality agreements
Employees sign contract and promise not to disclose
Company’s marketing plans, customer lists, discoveries, etc.
Uniform Commercial Code (UCC)
Important state based legislation impacting contract law
Covers the sale of goods
UCC relates to contracts involving goods, and what governs most other contracts?
Common law
Bilateral contracts
Involve promise for promise (mutual) exchange
Unilateral contracts
Agreement with only 1 promise and only 1 party is committed
To perform
Exist when promise is made to motivate an action
Express contract
Arise from interactions where parties discuss promised
Terms of their agreement
Ex. Negotiated purchase of land for construction of
manufacturing plant
Implied-in-fact contracts
Arise from conduct of parties rather than from words
Ex. Asking an accountant for professional advice implies
Promise to pay going rate for advice, even though you
Don’t make express promise to pay
Implied in law contract AKA quasi contract
1 party unjustly enriched at expense of another, law may
Imply duty on 1st party to pay 2nd even though there is
No contract
Ex. Debtor over pays creditor $5000, they can sue creditor
On quasi contract to get back the money
Enforceable contract
When courts uphold validity of promises of contract
Unenforceable contract
Nonperforming party has justifiable reason for noncompliance
With promise
Valid contract
Agreement is enforceable because all essential requirements
Are present
Void contract
Appears to be in agreement but lacks essential requirement
For validity and enforceability
Ex. Collecting money on illegal gambling
Voidable contract
Agreement when at least one party has right to withdraw
From promise made without legal liability
Executed contract
Parties have performed their promises
Ex. Paying for groceries with money
Executory contract
Parties have not yet performed their agreement
What are the 5 essential elements for forming a valid contract?
1 offer 2 acceptance 3 consideration 4 capacity 5 lawful purpose
Offer to contract
Contains specific promise and specific demand
Definite terms: contracts
Under common law of contracts, contractual terms must
Be definite and specific
3 examples of indefiniteness
Advertisements, catalogs, web pages with price quotes
Under the UCC, contracts for the sale of goods can…
What does this not apply to?
Leave open nonquantity terms to be decided at future time
(can leave open price for future date)
This doesn’t apply to real estate or services
4 instances when an offer is terminated?
1 too much time ellapses
2 oferee’s rejection
3 offerees counter offer
4 revocation (offeror takes back offer)
Acceptance
Offeree’s makes the required promise
Necessary to create valid enforceable contract
Mirror image rule, required by standard contract law
For acceptance to create binding contract, acceptance
Must mirror offer (match exactly)
Merchants
People who deal in business of goods
Mailbox rule AKA deposited acceptance rule
Acceptance of contract becomes binding when deposited
with postal service
Consideration
All promises aren’t enforceable though legal action, there
Must be incentive for person’s promise or it’s nonbinding
Consideration is mechanism for evaluating existence of
Incentive
Consideration: bilateral contract
Promises each party makes to each other are the
consideration
Consideration: unilateral contract
Performance when there is no obligation to do so
Important aspect of consideration
It must be bargained for
Promises to make gifts…
Are not binding because no bargained for consideration
Supports the promise
Accord of satisfaction
Compromising payment between parties, where one after
Receiving the payment will not sue the other
Preexisting obligation
If you have contract person to repair your house for $20000
And halfway through he insists on another $5000 to complete
The job and you agree. But only pay him $20k when he finishes
He will lose I court if he sues you
Unless he does more than you previously agreed to do
Preexisting obligation: sale of goods contract
Does not apply to Sale of goods contract
Binding modifications can be made
Firm offer
Exists when merchant offers goods promises in writing
That offer will not be revoked for period not exceeding 3
Months
Option
Promise to keep offer open for certain time period
By the oferee’s consideration
Doctrine of promissory estoppel
Promisee justifiably relies on promisor’s promise to his
Economic injury
Ex. Employer promises not to fire employee without justifiable cause
Capacity, define. 3 classes of persons who lack capacity to be bound by contractual promises
Refers to person’s ability to be bound by contract
1 minors
2 intoxicated persons
3 mentally incompetent persons
What 5 contractual promises can minors be legally bound by?
Necessaries of life: food, clothing, shelter, medical care,
Education (in some states)
Lawful purpose
Courts don’t deal with illegal contracts (killing, tort with
standards of behavior violated)
Contracts that restrain trade
Often illegal if they monopolize companies and fix prices
Btw competitors
Covenants not to compete
Important in protecting employers from having employees
They train leave them and compete against them
Also protect buyer from business from seller setting up
Competing business
6 common voidable contracts
1 fraud 2 misrepresentation 3 duress 4 undue influence 5 mutual mistake 6 unilateral mistake
Fraud
Involves intentional misstatement of important fact that
Induces one to rely justifiably on his injury
Misrepresentation
Misstatement without intent to mislead
Duress
Force or threat
Undue influence
One is taken advantage of unfairly through contract by
Party who misuses position of relationship or legal confidence
Mutual mistake
Voluntarily agree to contract without understanding important
Facts in it from both parties involved
Rescission
Test of materiality whether parties would have contracted if
They’d been aware of the mistake
Unilateral mistake
Only one of the parties to contract is wrong about material
Fact
Oral contracts
Generally valid unless they involve larger sums of money
Statute of frauds
Law requiring certain contracts be in writing
Designed to prevent potential deception or fraud from oral
Contracts
Contracts for sale of Interest in land, covers contracts for 4 things
1 Covers contract to sell land
2 mortgages
3 mining rights
4 easements
Easements, define, give example
Rights to use another’s land
Ex. Cross it with electric power wires
Collateral promise
Secondary Or conditional promise
Collateral promise
Business shareholder promises to repay loan of corporation
If and only when the corporation is having trouble making
Payments
Written contract
If it is possible or unlikely to perform a contract within 1 year
The statute of frauds allows…
An oral contract involving that performance to be enforceable
Sale of goods $500 or more
Must be in writing or have written evidence of transaction
3 Exceptions to written contracts in the statute of frauds?
1 part performance
2 rules involving goods
3 judicial admissions
Part performance AKA promissory estoppel
Creates exception to requirement that sales of interests in
land must be in writing
When buyer makes valuable improvements to land and paid
Part of purchase price, oral contract to sell is enforceable
4 for sale of good contracts that can be oral
1 $500 goods manufactured specifically for buyer
2 where payment made and accepted
3 party admits in court contract was made
4 sued merchant receives written contract and doesn’t
Reject w/in 10 days
Judicial admissions
Sued party admits Oral contract exists in court
Third party beneficiaries
Original parties to contract may intend for agreement to
Benefit a 3rd party
When can a 3rd party sue
Sue if parties in contract intended to benefit that person
Donee beneficiary
When performance under contract is meant as gift to third
Party, that person is donee beneficiary
Incidental beneficiary
Someone who unintentionally benefits from contract
Has no rights under that contract
Creditor beneficiary
Someone who’s owed money from a person contracted to
pay them
Law of assignment
Transfer (generally a sale) of rights under a contract
Assignor
Assignee
1 of the original contracting parties assigns rights and/or
duties to third party (assignee)
Obliger
Obligee
Obliger = contracts to buy
Obligee = in contract sells to buyer
Contracts that can’t be assigned
Assignment that increases burden of performance to Obligor
Can’t be assigned
Novation, ex.
3 or more party contract where original contracting parties
Agree to relieve Obligor from liability by substituting an
Assignee in place of this party
Ex. You and your friend have contract to pay rent with landlord, your friend moves out and stops paying rent, novation is agreeing with landlor that the liability of the rent goes to the friend
